Report of the Comptroller and Auditor General of Indiadgace.cag.gov.in/pdf/Report No. 27_2016_English.pdf · Conclusion 15 Chapter 3: Progress ... entrust the Comptroller and Auditor

Report of the

Comptroller and Auditor General of India

on

Compliance of Fiscal Responsibility

and Budget Management Act, 2003

for the year 2014-15

Union Government (Civil) Department of Economic Affairs

(Ministry of Finance)

Report No. 27 of 2016

i

Para Sub

Para Description

Page

No.

Preface iii Executive Summary v-ix

Chapter 1: Introduction

1.1 Background 1

1.2 Fiscal Responsibility and Budget Management Act, 2003 and Rules 2004

1

1.3 Temporary hold of FRBM Act. 3 1.4 Introduction of renewed road-map under amended FRBM Act 4

1.5 Amended FRBM Act and obligations of the Union Government 5

1.6 Review of compliance of provisions of FRBM Act by the Comptroller and Auditor General of India (CAG)

6

1.7 Audit Objectives 7

1.8 Audit Scope and Methodology 7

1.9 Audit Criteria 8 1.10 Structure of the Report 9

Chapter 2: Deviation from the Act and Rules

2.1 Continuous deferment of targets 10

2.2 Non-adherence to annual reduction targets in 2014-15 10 2.3 Inconsistency in fiscal targets between MTFP Statement and FRBM

Act/Rules 12

2.4 Inconsistency in FRBM Act and Rules – on assumption of additional liabilities

14

2.5 Inconsistency in format of disclosure statement (D-6) 15 Conclusion 15

Chapter 3: Progress in achievement of FRBM targets

3.1 Revenue Deficit 16

3.1.1 Revenue Deficit target 16 3.1.2 Trend of Revenue Deficit 17

3.1.3 Revenue Deficit during 2014-15 18

3.2 Fiscal Deficit 18

3.2.1 Fiscal Deficit target 18

3.2.2 Trend of Fiscal Deficit 19

3.2.3 Fiscal Deficit during 2014-15 20

3.2.4 Revenue Deficit as a component of Fiscal Deficit 21 3.2.5 Transactions affecting the computation of deficit indicators 22

3.2.5.1 Understatement of Revenue Deficit due to misclassification of expenditure

22

3.2.5.2 Contraction of Revenue Deficit due to one-time receipts in 2014-15 23

3.2.5.3 Short/non transfer of levies/cess to earmarked funds 24

3.2.5.4 Non recognition of losses under NSSF in CFI 27

3.2.5.5 Net proceeds to States 28

3.2.5.6 Unpaid expenditure on subsidy 29

CONTENTS

ii

Para Sub

Para Description

Page

No.

3.3 Effective Revenue Deficit 30

3.3.1 Effective Revenue Deficit target 30 3.3.2 Trend of Effective Revenue Deficit 31

3.3.3 Effective Revenue Deficit during 2014-15 32

3.3.3.1 Inconsistency in expenditure on grants for creation of capital assets 32

3.3.4 Incorrect estimation of Effective Revenue Deficit target 33

3.3.5 Incorrect classification of certain expenditure as grants for creation of capital assets

35

3.3.5.1 Expenditure on procurement and maintenance treated as grants for creation of capital assets

35

3.3.5.2 Incorrect classification of expenditure under IAY and RAY 38 3.4 Liability of the Government 40

3.4.1 Liability target 40

3.4.2 Trend of outstanding liability 42

3.4.3 Understatement of Public Account liability 42 3.5 Guarantees 43

3.5.1 Guarantees target 44

3.5.2 Trend of additions in Guarantees 44

3.6 Borrowings from Reserve Bank of India 45 Conclusion 45

Chapter 4: Analysis of projections in fiscal policy statements

4.1 Projections in Mid Term Fiscal Policy Statement 47

4.1.1 Gross Tax Revenue projection 47 4.1.2 Total Outstanding Liability projection 48

4.1.3 Disinvestment projection 49

4.1.4 Structural imbalance in the composition of expenditure 49

4.2 Projections in Medium Term Expenditure Framework Statement 51

Conclusion 52

Chapter 5: Disclosure and Transparency in fiscal operations

5.1 Transparency in Government Accounts 53 5.1.1 Non-inclusion of statements in Union Accounts 53

5.1.2 Lack of transparency in Direct tax receipt figure 54

5.2 Transparency in disclosure statements mandated under FRBM Act 55

5.2.1 Understatement of arrears of Non-Tax Revenue 55 5.2.2 Non-inclusion of outstanding coal levy in arrears of Non-Tax Revenue 56

5.2.3 Understatement of assets 56

5.2.3.1 Variation in figures of closing and opening balances of assets 57

5.2.3.2 Inconsistency in figures of loans to Foreign Governments 57 5.2.4 Inconsistency in disclosure of grants for creation of capital assets 57

5.2.4.1 Incorrect disclosure in Form D-6 57

5.2.4.2 Discrepancies between Budget Estimates and DDG 58

Conclusion 60 Annexes 61-68

Glossary 69-70

iii

Section 7A of the Fiscal Responsibility and Budget Management (FRBM) Act,

2003, as amended in May 2012, provides that the Central Government may

entrust the Comptroller and Auditor General of India to review periodically as

required, the compliance of the provisions of this Act and such reviews shall be

laid before both House of Parliament. An amendment to the FRBM Rules 2004

was notified on 31 October 2015. Rule 8 of the FRBM (Amendment) Rules

provides that the Comptroller and Auditor General of India shall carry out an

annual review of the compliance of the provisions of the FRBM Act and the

Rules made thereunder by the Central Government, beginning with the

financial year 2014-15, and the Report shall be submitted to the President, who

shall cause them to be laid on the table of both Houses of Parliament.

This is the first report of the Comptroller and Auditor General of India relating

to review of the compliance of the provisions of the FRBM Act and the Rules

made thereunder by the Central Government for the year ended March 2015.

The report contains significant results arising from the review. The instances

mentioned in this report are those, which came to notice in the course of test

audit for the period 2014-15 as well as earlier years. Matters relating to the

period subsequent to 2014-15 have also been included, wherever necessary.

The audit has been conducted in conformity with the auditing standards issued

by the Comptroller and Auditor General of India.

PREFACE


v

Introduction

The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was

enacted by the Parliament in August 2003. The objective of introducing

FRBM Act, 2003 was to institutionalize fiscal discipline, reduce fiscal deficit,

improve macro-economic management and the overall management of the

public funds by moving towards a balanced budget. Due to global economic

crisis and adverse circumstances, the implementation of FRBM Act was put

on hold in February 2009. An amendment to the FRBM Act was made by the

Parliament in May 2012. An important aspect of the amendment was

introduction of Section 7A, which provides for entrustment to the Comptroller

and Auditor General of India, the periodical review of compliance of the

provisions of the Act by the Union Government.

What the Report covers

The present report discusses the compliance by the Union Government of the

provisions of FRBM Act, 2003 and the Rules made thereunder for the

financial year 2014-15. We have examined various amendments made in the

FRBM Act and Rules and analysed the trends and targets of various fiscal

indicators as set out in the Act/Rules from time to time. During the review

Audit examined (i) consistency of rules framed under the provisions of the

Act; (ii) achievement of targets by the Government as set out in the FRBM

Act and Rules; (iii) achievement of targets of receipts and expenditure as set

out in various fiscal statements; and (iv) issues of transparency and disclosures

made by the Government.

Major observations

Important audit observations relating to compliance of the provisions of the

Act and Rules made thereunder, and also on other related topics, are detailed

below:

EXECUTIVE SUMMARY


vi

Deviation from the Act and Rules

� For financial year 2014-15, in respect of effective revenue deficit and

revenue deficit, the annual reduction targets set out by the Government in

the Budget were not in accordance with the provisions of the Act.

(Para 2.2)

� There were inconsistencies in prescribed targets dates of fiscal indicators

under FRBM Act/Rules and target dates set out in Medium Term Fiscal

Policy Statement.

(Para 2.3)

� There was inconsistency between provisions contained in the FRBM Act

and Rules made thereunder in respect of assumption of additional

liabilities.

(Paras 2.4)

Progress in achievement of FRBM targets

� For financial year 2014-15, Government was able to achieve the targets

as set in Medium Term Fiscal Policy Statements in respect of revenue

and fiscal deficits. However, in respect of effective revenue deficit, the

target could not be achieved.

(Paras 3.1.3, 3.2.3 and 3.3.3)

� During the course of audit of accounts for FY 2014-15 of the Union

Government, certain transactions and financial eventualities were noticed

which had affected or had the bearing to affect the computation of

prescribed deficit indicators set out in the Act and the Rules made

thereunder.

(Para 3.2.5)

� Due to deficiency in the mechanism of estimating provisions on grants

for creation of capital assets, in certain test checked Ministries/

Departments, the resultant estimation of effective revenue deficit target in

FY 2014-15 was incorrect.

(Para 3.3.4)

� As a result of existence of varying practices in treatment of expenditure

on grants for creation of capital assets and incorrect classification of


vii

expenditure in certain welfare schemes, the effective revenue deficit was

understated during the financial year 2014-15.

(Paras 3.3.5.1 and 3.3.5.2)

� From FY 2011-12 onwards, the outstanding liability in terms of GDP

outstripped the targeted level as contained in the Medium Term Fiscal

Policy Statement. Further, due to understatement of liabilities of

` 6,70,210 crore in the Public Account, the total liabilities of the Union

Government were contained at 46.2 per cent of GDP, which otherwise

would have stood at 51.6 per cent of GDP in FY 2014-15.

(Paras 3.4.2 and 3.4.3)

Analysis of projections in fiscal policy statements

� Projection for FY 2014-15 included in Medium Term Fiscal Policy

Statement in respect of gross tax revenue, outstanding liabilities, and

disinvestment varied significantly from the actuals. Similarly, projection

under various heads of expenditure for FY 2014-15 included in Medium

Term Expenditure Framework Statements of 2013-14 varied significantly

in BE and RE of 2014-15.

(Paras 4.1 and 4.2)

Disclosure and Transparency in fiscal operations

� Recommendation of Twelfth Finance Commission relating to inclusion of

eight additional statements in the Union Government Accounts for

greater transparency, has not been acted upon, despite in-principle

acceptance of the recommendation by the Government.

(Para 5.1.1)

� Refunds of ` 1,17,495 crore (including interest on refunds of taxes) were

made from gross direct tax collection in FY 2014-15 but this aspect was

not disclosed in the Government accounts.

(Para 5.1.2)

� Disclosure statements mandated under the FRBM Act and the Rules

made thereunder placed before the Parliament for FY 2014-15 and earlier

years contained inconsistencies relating to understatement of non-tax

revenue; variations in closing and opening balances of physical and


viii

financial assets; overstatement of loans to foreign governments; and

discrepancies in the estimation of provision on grants for creation of

capital assets.

(Para 5.2)

Recommendations

Based on audit observations contained in the Report, the following

recommendations are made:

(i) To address the issues of inconsistency in the FRBM Act/Rules, the

Government may carry out suitable amendments.

(ii) The Government should follow the format of Form D-6 as prescribed

under the FRBM Rules.

(iii) Budgetary provisioning as well as their accountal need to be in

harmony with the codal provisions relating to classification structure

of accounts to avoid misclassification of expenditure.

(iv) The Government may transfer specific purpose levies/cess collected to

the funds earmarked for the purpose.

(v) A mechanism for recognizing the result of annual operations of NSSF

and its impact on the Government finances may be put in place.

(vi) To facilitate correct identification and booking of expenditure as

grants on creation of capital assets, the Government may consider

defining the criteria for classification of expenditure as grants for

creation of capital assets and its compliance by the

Ministries/Departments.

(vii) The Government may exclude such grants, which does not lead to

creation of assets owned by the grantee organisations, from

categorising as grants for creation of capital asset.

(viii) The Government may strengthen the process of making underlying

assumptions for projection of receipt and expenditure in various fiscal

policy statements to insulate them from frequent changes and to

seamlessly integrate the projection in the Budget.


ix

(ix) Necessary steps may be taken to append additional statements in the

Union Government Finance Accounts as suggested by the 12th

Finance

Commission to ensure greater transparency in the accounts.

(x) Disclosure statements prepared under the FRBM Act and Rules made

thereunder should be complete in all respect and transparent.


1

p

1.1 Background

The issue of management of fiscal deficit assumed importance in India in the

late eighties when the combined deficit of the Union and State Governments

rose to levels above 7 per cent of Gross Domestic Product (GDP). In the

year 1999-2000, the combined fiscal deficit of the Union and State

Governments stood at about 9.8 per cent of GDP, while revenue deficit was

about 6.8 per cent.

Fiscal deficit of the Union was over 6 per cent of GDP in the first half of the

eighties which widened further in the second half, reaching almost 9 per cent

at the end of financial year (FY) 1986-87. It was about 8.3 per cent in

FY 1990-91. During the period 1994-99, the average fiscal deficit of the

Union was over 6 per cent. Moreover, the total debt liability of the Union

increased from ` 6,30,071 crore in 1994-95 to ` 10,12,486 crore in 1998-99,

showing an increase of 61 per cent.

In view of the continuing fiscal stress on the economy and the need to contain

the fiscal deficit within a reasonable limit, the Union Government, in January

2000, set up a Committee to go into the various aspects of the fiscal system

and to recommend a draft legislation on fiscal responsibility. Based on

recommendation of the Committee, the Government, in December 2000,

introduced Fiscal Responsibility and Budget Management (FRBM) Bill,

which became Act in August 2003.

1.2 Fiscal Responsibility and Budget Management Act, 2003 and

Rules, 2004

The objective of FRBM Act, 2003 was to institutionalize fiscal discipline,

reduce fiscal deficit, improve macro-economic management and the overall

management of the public funds by moving towards a balanced budget. FRBM

Rules, 2004, framed under Section 8 of the Act came into force in July 2004.

FRBM Act was enacted to provide for following responsibilities of the Central

Government:

Chapter 1: Introduction


2

� to ensure inter-generational equity in fiscal management and long term macro-

economic stability by achieving sufficient revenue surplus and removing fiscal

impediments in the effective conduct of monetary policy;

� prudential debt management consistent with fiscal sustainability through limits on

the Central Government borrowings, debt and deficits;

� greater transparency in fiscal operations of the Central Government; and

� conducting fiscal policy in a medium-term framework and for matters connected

therewith or identical thereto.

To achieve the above, the Act and the Rules stipulated following targets to be

achieved by the Union Government in respect of major fiscal indicators as

indicated in Box-1.

Box-1: Targets for various fiscal indicators

Fiscal

Indicators Target

Revenue

Deficit (RD) Elimination of RD by 31 March 2008 and thereafter to build up adequate revenue surplus. To achieve the target of RD the Central Government shall reduce the RD by an amount equivalent to 0.5 per cent or more of the GDP1 at the end of each financial year beginning with 2004-05.

Fiscal Deficit

(FD) To bring down the FD to not more than three per cent of GDP at the end of 31 March 2008. To achieve the target of FD the Central Government shall reduce the FD by an amount equivalent to 0.3 per cent or more of the GDP at the end of each financial year beginning with 2004-05.

Guarantees The Government shall not give guarantee aggregating to an amount exceeding 0.5 per cent of GDP in any financial year beginning with 2004-05.

Liabilities The Government shall not assume additional liabilities (including external debt at current exchange rate) in excess of 9 per cent of GDP for FY 2004-05 and in each subsequent financial year, the limit of 9 per cent of GDP shall be progressively reduced by at least one percentage point of GDP.

Borrowings

from Reserve

Bank of India

The Act imposes restrictions on the borrowing by the Central Government from Reserve Bank of India (RBI).

Note: The position of the fiscal indicators from 2004-05 to 2014-15 are given in Annex 3.1. In respect of liabilities the figures are available at Table-7 and Graph-5 and in respect of

guarantees position is available in Graph-6.

1 As per FRBM Rules GDP means Gross Domestic Product at current price.


3

Besides, the Act and Rules require the Government to lay in both Houses of

Parliament three policy statements along with the Annual Financial Statement

and the Demands for Grants, as briefly narrated in Box-2 below.

Box-2: Fiscal Policy Statements

Medium Term

Fiscal Policy

(MTFP)

Statement

MTFP Statement containing three year rolling targets for fiscal indicators viz. RD, FD, Tax Revenue and Total Outstanding Liabilities as a percentage to GDP with specifications of underlying assumptions, including assessment of sustainability relating to balance between revenue receipt and revenue expenditure; use of capital receipts including market borrowings for generating productive assets.

Fiscal Policy

Strategy (FPS)

Statement

FPS Statement containing policies of the Central Government for the ensuing financial year, relating to taxation, expenditure, market borrowings and other liabilities, lending and investment, pricing of administered goods and services, securities and description of other activities etc., an evaluation of current policies vis-à-vis fiscal management principles, intra-year benchmarks for assessing trends in receipts and expenditure relating to annual targets and Budget Estimates (BE).

Macro-

economic

Framework

(MF)

Statement

MF Statement containing an assessment of growth in GDP, fiscal balance of the Union Government and external sector balance of economy as reflected in current account of balance of payment.

In the Budget speech of 8 July 2004, it was brought out that 2008-09 would be

a more credible terminal year, which would also coincide with the term of the

then Government. Accordingly, through the Finance Act 2004, amendment in

Section 4 of the FRBM Act was made, thereby the target dates for revenue

deficit and fiscal deficit were shifted to 31 March 2009.

1.3 Temporary hold of FRBM Act

Beginning from FY 2005-06, the fiscal deficit showed signs of improvement

and was reduced to a level of 2.7 per cent of GDP (as per Budget at a Glance)

in FY 2007-08 (refer Graph-2 of Para 3.2.2). In February 2009, the

Government put on hold temporarily the fiscal consolidation process citing

global economic crisis and adverse circumstances. During the two financial

years, i.e. FY 2008-09 and 2009-10, the fiscal deficit again rose to the level of

6.0 and 6.4 per cent of GDP (as per Budget at a Glance) respectively. The

outstanding liability of the Government during these two years’ period also

hovered around 49 to 50 per cent of GDP (refer Graph-5 of Para 3.4.2).


4

1.4 Introduction of renewed road-map under amended FRBM

Act

The 13th Finance Commission (FC) in its report (December 2009) for the

award period 2010-15 had presented renewed fiscal consolidation path for the

Centre. 13th FC recommended zero and three per cent targets of revenue and

fiscal deficit respectively to be achieved by the end of March 2014 followed

by revenue surplus of 0.5 per cent of GDP by 2014-15.

An amendment in the FRBM Act was passed by the Parliament in May 2012,

wherein a new fiscal indicator namely ‘effective revenue deficit’ was

introduced, to be worked out by excluding revenue expenditure incurred on

‘grants for creation of capital assets’ from the revenue deficit. In addition, it

envisaged elimination of effective revenue deficit by 31 March 2015 and

thereafter build up adequate effective revenue surplus and also to reach

revenue deficit of not more than two per cent of GDP by 31 March 2015,

among other measures. Further, in order to eliminate the effective revenue

deficit by 31 March 2015, the Central Government shall reduce such deficit by

an amount equivalent to 0.8 per cent or more of the GDP at the end of each

financial year beginning with FY 2013-14.

Subsequent to the amendment of May 2012 in the Act, the Government set up

a committee chaired by Dr. Vijay L. Kelkar, who was charged with the task of

introducing mid-term corrections for fiscal year 2012-13 and to chart a

medium term framework on this basis, for the remaining time horizon of the

13th FC. The Kelkar Committee in its report (September 2012) had

recommended fiscal roadmap of zero effective revenue deficit; two per cent

revenue deficit and 3.9 per cent fiscal deficit by the end of FY 2014-15.

Recommendations of the Committee with regard to proposed reforms on

expenditure and receipts were accepted by the Government (October 2012).

However, the Government decided (May 2013) to achieve the fiscal deficit

target of not more than 3 per cent of GDP by 2016-17. Accordingly,

amendments in FRBM Rules indicating new targets for fiscal consolidation

were notified in May 2013 whereby the target date for elimination of effective

revenue deficit, achieving the target of revenue deficit of not more than

two per cent of GDP was fixed as 31 March 2015 and for fiscal deficit of not


5

more than three per cent of GDP as 31 March 2017. The annual rates of

gradual reduction in the deficit parameters were also revised upwardly

(revenue deficit from 0.5 per cent or more of GDP to 0.6 per cent or more and

fiscal deficit from 0.3 per cent or more of GDP to 0.5 per cent or more). In

June 2015, the FRBM Rules were further amended to achieve the targeted

levels in respect of the three deficit indicators by 31 March 2018 and also the

annual rate of gradual reduction were relaxed in contrast to the upward

revision made in the Rules in May 2013 (revenue deficit from 0.6 per cent or

more of GDP to 0.4 per cent or more, fiscal deficit from 0.5 per cent or more

of GDP to 0.4 per cent or more and effective revenue deficit from 0.8 per cent

or more of GDP to 0.5 per cent or more).

1.5 Amended FRBM Act and obligations of the Union

Government

Since the enactment of the Act in 2003 and taking into account numerous

amendments made in the Act and Rules from time to time, including the latest

amendments in the Act (as of May 2015) and the Rules (as of June 2015), the

status of the target dates for various fiscal indicators stand as indicated in Box-

3 below:

Box-3: Revised targets for various fiscal indicators

Indicators Targets

Effective

Revenue

Deficit (ERD)

ERD is to be eliminated by 31 March 2018 with annual reduction by an amount equivalent to 0.5 per cent or more of GDP at the end of each financial year beginning with FY 2015-16.

Revenue

Deficit (RD)

RD of not more than two per cent of GDP by 31 March 2018 with annual reduction by an amount equivalent to 0.4 per cent or more of GDP at the end of each financial year beginning with FY 2015-16.

Fiscal Deficit

(FD)

FD of not more than three per cent of GDP at the end of 31 March 2018 with annual reduction by an amount equivalent to 0.4 per cent or more of GDP at the end of each financial year beginning with FY 2015-16.

Since the introduction of the Act, no change has been made in targets related

to guarantees, total liabilities and borrowings from RBI (shown in Box-1). The

amended FRBM Act and Rules2 also requires the Government to lay down

another Statement, viz. Medium Term Expenditure Framework Statement

2 Sections 6 and 7 of the FRBM Act and Rule 6 of FRBM Rules


6

before both Houses of Parliament, immediately following the Session of

Parliament in which the other three policy statements (shown in Box-2) were

laid, containing the following information:

Medium Term

Expenditure Framework

(MTEF) Statement

MTEF Statement containing three year rolling target for prescribed expenditure indicators, with specification of underlying assumptions and risks involved.

Further, the FRBM Act and Rules (as amended from time to time) requires

laying of quarterly review reports, in addition to certain disclosures in the

prescribed formats, which are indicated in Annex-1.1.

1.6 Review of compliance of provisions of FRBM Act by the

Comptroller and Auditor General of India (CAG)

13th FC had recommended that the Centre may institute a process of

independent review and monitoring of the implementation of FRBM process.

Accordingly, a new Section 7A was inserted through FRBM Amendment Act

(May 2012) which provides that the Central Government may entrust the

CAG to review periodically as required, the compliance of the provisions of

this Act and such reviews shall be laid before both Houses of Parliament.

An amendment in the Rules was further made in October 2015 to carry out the

effect of amendment in the Act made in May 2012. The amended Rules

provide that, the CAG shall carry out an annual review of the compliance of

the provisions of the Act and the Rules made thereunder by the Central

Government beginning with the Financial Year 2014-15. The review shall

include:

(i) analysis of achievement and compliance of targets and priorities set

out in the Act and the Rules made thereunder, Medium Term Fiscal

Policy Statement, Fiscal Policy Strategy Statement, Macro-

economic Framework Statement and Medium Term Expenditure

Framework Statement;

(ii) analysis of trends in receipts, expenditure and macro-economic

parameters in relation to the Act and the Rules made thereunder;

(iii) comments related to classification of revenue, expenditure, assets

or liabilities having a bearing on the achievement of targets set out

in the Act and the Rules made thereunder; and


7

(iv) analysis of disclosures made by the Central Government to ensure

greater transparency in its fiscal operations.

1.7 Audit Objectives

Audit objectives for the review of the compliance of the provisions of the Act

were to examine whether:

a) the Rules framed under the Act are consistent with the provisions of

the Act;

b) the Government achieved the targets of fiscal indicators set out in the

FRBM Act and Rules made thereunder effectively;

c) the classification of revenue, expenditure, assets and liabilities are in

line with established rules and principles;

d) the projections of components of receipts and expenditure in various

fiscal policy statements are based on concrete assumptions; and

e) the disclosures made by the Central Government to ensure

transparency in fiscal operations are adequate.

1.8 Audit Scope and Methodology

In terms of Government of India (Allocation of Business) Rules 1961, the

Ministry of Finance, Department of Economic Affairs is responsible for

preparation of Central Budget other than Railway Budget including

supplementary/excess grants; monitoring of budgetary position of the Central

Government; credit, fiscal and monetary policies; and administration of the

Fiscal Responsibility and Budget Management Act 2003, among other

business of the Government of India.

Accordingly, the field audit was conducted during the period December 2015

to February 2016. During this period, records of the Ministry of Finance,

Department of Economic Affairs were examined, including examination of the

FRBM Act and Rules made thereunder and various amendments carried out

from time to time, disclosures contained in prescribed Forms D-1 to D-6 for

the year 2014-15 presented along with the Budgets for the year 2015-16 and

2016-17, as well as other budget and accounts related publications.


8

As brought out in para 1.6, the CAG is mandated to carry out an annual review

of the compliance of the provisions of the Act and the Rules made thereunder

by the Central Government beginning with the financial year 2014-15.

Accordingly, the focus has been on the targets and transactions relating to this

particular financial year. However, matters relating to periods prior to 2014-15

as well as subsequent years were also examined wherever necessary. The

draft report was issued to the Ministry of Finance on 29 February 2016. An

exit conference with the officers of the Ministry of Finance, Department of

Economic Affairs was held on 13 April, 2016, wherein the audit findings and

recommendations were discussed. On receipt of replies from the Ministry, the

same together with rebuttal were incorporated and the revised draft report was

again made available to the Ministry on 23 May 2016. Subsequent replies of

the Ministry on the revised draft report received on 24 June 2016 have also

been incorporated in this report.

1.9 Audit Criteria

The main sources of audit criteria used for the purpose of review were drawn

from documents, such as the following:

• FRBM Act, 2003 as amended from time to time.

• FRBM Rules, 2004 as amended from time to time.

• Budget documents including various statements submitted by

Government under FRBM Rules and disclosures made to ensure

transparency in fiscal operations.

• Quarterly Review Reports submitted by the Ministry of Finance in

Parliament.

• Union Government Finance Accounts compiled by the Controller

General of Accounts under Ministry of Finance, Department of

Expenditure.

In addition, the reports of the Finance Commissions, High Level Expert

Committee on Efficient Management of Public Expenditure, and other

Committees on Fiscal Consolidation have also been consulted to determine the

audit criteria.


9

1.10 Structure of the Report

The present report is the first annual review by the CAG as per Rule 8 of

FRBM (Amendment) Rules 2015 to examine compliance of provisions of the

Act by the Government for FY 2014-15. The findings of Audit are discussed

in Chapters 2 to 5.

• Chapter 2 of this Report deals with the issues where deviations from

the Act and Rules were noticed.

• Chapter 3 analyses the extent of achievement of various fiscal

indicators during FY 2014-15 as compared to the targets set under the

Act and Rules.

• Chapter 4 examines the receipts and expenditure of the Union

Government for FY 2014-15 vis-à-vis projections contained in various

fiscal policy statements, Budget at a Glance, Annual Financial

Statement and Union Government Finance Accounts.

• Chapter 5 contains observations relating to adequacy and accuracy of

disclosures mandated under the Act and Rules and also issues of

transparency in fiscal operations.


10

In the FRBM Act 2003 and FRBM Rules 2004 (as amended from time to

time) various fiscal targets were set. In this chapter, we have discussed the

issues regarding deviations from provisions of the Act and the Rules and

inconsistencies between the Act and the Rules, followed by recommendations

wherever considered necessary.

2.1 Continuous deferment of targets

Fiscal targets prescribed in the original FRBM Act 2003 were to be achieved

by 31 March 2008 which were deferred to 31 March 2009 in 2004. However,

in 2009, the Government decided to put on hold temporarily the process of

fiscal consolidation citing reason of global meltdown necessitating adjustment

of fiscal policy to take care of exceptional circumstances through which the

economy was passing and promised to return to the FRBM target for fiscal

deficit at the earliest and as soon as the negative effects of the global crisis on

the economy have been overcome. Accordingly, the FRBM Act amended

through the Finance Act 2012 (May 2012) and rules made thereunder notified

in May 2013, contained revised targets for Revenue Deficit and Effective

Revenue Deficit, to be achieved by 31 March 2015. Further, in the MTFP

Statement placed along with Budget for FY 2014-15, the Government shifted

target for achievement of revenue deficit to March 2017 citing the reason

‘below five percent growth in GDP in the last two years’. Through Finance

Act 2015, amendment was made in the FRBM Act by which the target dates

for achievement of all the three deficit indicators were again extended to

March 2018. The reasons given were ‘emerging government priorities and

compositional shift in the fiscal relations between the Centre and States’

following the recommendations of the Fourteenth Finance Commission. Thus,

the Government has continuously been deferring the targets under the Act

immediately after its enactment.

2.2 Non-adherence to annual reduction targets in 2014-15

Rule 3 of amended FRBM Rules notified in May 2013 required that in order to

achieve the deficit targets as set out in Section 4 of the Act, the Central

Chapter 2: Deviation from the Act and Rules


11

Government shall reduce the effective revenue deficit, revenue deficit and

fiscal deficit targets by an amount equivalent to 0.8 per cent, 0.6 per cent and

0.5 per cent or more of the GDP respectively3 at the end of each financial year

beginning with FY 2013-14.

It may be mentioned that the Budget for FY 2013-14 was already placed in

February 2013, whereas the amended FRBM Rules were notified subsequently

in May 2013 setting out the amended annual reduction targets in respect of

three deficit indicators beginning with FY 2013-14. Taking into account the

amended annual reduction target of three deficit indicators, the Table-1 below

analyses the compliance of annual reduction in FY 2014-15 as set by the

Government in MTFP Statement for 2014-15 vis-à-vis RE for FY 2013-14.

Table-1: Annual Reduction Targets

(As percentage of GDP)

Fiscal Indicators RE

2013-14

Target in

BE 2014-15 Annual Reduction

Effective Revenue Deficit 2.0 1.6 0.4

Revenue Deficit 3.3 2.9 0.4

Fiscal Deficit 4.6 4.1 0.5

Source: MTFP Statement for 2014-15

The annual reduction target in respect of two deficit indicators, i.e. effective

revenue deficit and revenue deficit were only 0.4 per cent of GDP in Budget

of 2014-15 with reference to the revised estimates for FY 2013-14 as against

required reduction of 0.8 per cent and 0.6 per cent respectively as specified in

FRBM Rules applicable during that period. As such, the annual reduction

targets envisaged in the Budget of 2014-15 were not in accordance with

provisions contained in the Rules.

The Ministry stated (May 2016) that the MTFP Statement for the year 2014-15

had acknowledged an imbalance on revenue account and it was clarified that

the difficult macro-economic conditions in the international and domestic

market prevailing over the year resulted into lesser than mandated correction

in deficit. It further stated that later in the year 2015, in sync with the existing

macro-economic realities and need for creating additional fiscal space to

increase public investment, the FRBM Act was amended and new target date

was set for achieving deficit targets. It also added that annual reduction

targets have been re-calibrated. In Budget 2016-17, annual reduction in

3 These stipulations were further relaxed in June 2015 through amendment in the Act.


12

estimates of FD is in line with the FRBM Act, whereas, it is more than

mandated in respect of RD and ERD.

While taking into consideration the reply of the Ministry in the above para as

well as the position brought out in the MTFP Statement for FY 2014-15,

which bring out the impediments having a bearing on the achievement of the

annual reduction targets, it may be mentioned that the reduction targets as

specified in the FRBM Rules applicable during that period could not be

achieved. The subsequent recalibration of the reduction targets as mentioned

by the Ministry was brought into effect in June 2015 and the annual reduction

was to begin from FY 2015-16.

2.3 Inconsistency in fiscal targets between MTFP Statement and

FRBM Act/Rules

Section 4 of FRBM Act and Rule 3 of FRBM Rules specifies the targets for

the three fiscal indicators along with target date for their achievement. MTFP

Statement laid along with the Budget also contains three year rolling targets

for these fiscal indicators.

In this regard, following were observed in respect of target dates relating to

effective revenue deficit and revenue deficit after introduction of renewed

roadmap, which has also been summarized in Table-2 hereunder.

• FRBM Act as amended in May 2012 (through Finance Act 2012) set

the target of eliminating the effective revenue deficit and reach the

revenue deficit of not more than two per cent of GDP by 31 March

2015.

• MTFP Statement laid in Parliament in February 2013 along with

Budget 2013-14 indicated that this target will be achieved at the end of

FY 2015-16.

• FRBM Rules as amended and notified in May 2013 again set the said

targets of effective revenue deficit and revenue deficit as 31 March

2015.

• MTFP Statement laid in Parliament in July 2014 along with Budget

2014-15 showed that the targets of effective revenue deficit and

revenue deficit will be achieved at the end of FY 2016-17.


13

• In February 2015 through Finance Bill 2015, the Government proposed

changes in the FRBM Act and Rules and targets for achieving the

deficit indicators were shifted to 31 March, 2018. The Finance Bill

2015 became the Finance Act in May 2015.

Table-2: Inconsistency in target dates

As set out in

%age of

GDP

Amendment

Act of May

2012

MTFP

Statement of

February

2013

(in Budget

for FY 2013-

14)

FRBM

Rules

notified

in May

2013

MTFP

Statement of

July 2014

(in Budget for

FY 2014-15)

Finance Bill

2015

(in Budget

for FY

2015-16)

Effective

revenue

deficit

Nil To be achieved by

31 March 2015

31 March 2016

31 March 2015

31 March 2017 31 March 2018

Revenue

deficit

Not more than 2

Thus, between February 2013 and February 2015, different target dates were

set in respect of effective revenue deficit and revenue deficit. It may be seen

that MTFP Statements for 2013-14 and 2014-15 were having target dates

inconsistent with target dates set out in FRBM Act and Rules applicable

during that period.

The Ministry stated (May 2016) that the deferment of targets referred to in

audit observation was in respect of rolling targets/projections for next two

years (medium-term). It also stated that while preparing Budget for particular

financial year, the Government provides the rolling targets of specified fiscal

indicators viz., FD. RD, ERD, Tax-GDP ratio etc. in MTFP Statement. It

added that rolling targets are set on the basis of certain underlying

assumptions viz., GDP growth, receipts, expenditure etc. and variation in

these macro-economic parameters necessitates re-fixing of fiscal targets in the

budget year. Therefore, an advance amendment to the Act on the basis of

rolling targets is unwarranted, since situation may change by the time Budget

is presented.

The reply needs to be viewed in the light of the position that the MTFP

Statement which provides the underlying assumptions of fiscal indicators

along with rolling targets should have been aligned with the corresponding

fiscal targets stipulated in the FRBM Act/Rules.


14

2.4 Inconsistency in FRBM Act and Rules – on assumption of

additional liabilities

Rule 3(4) of the FRBM Rules requires that the Government shall not assume

additional liabilities (including external debt at current exchange rate) in

excess of 9 per cent of GDP for FY 2004-05 and in each subsequent financial

year, the limit of 9 per cent of GDP shall be progressively reduced by at least

one percentage point of GDP. Thus, according to application of this Rule, with

gradual reduction of one percentage point of GDP, from the level of

9 per cent, beginning from financial year 2004-05, the Government should not

assume any additional liabilities from the financial year 2013-14 onwards.

However, given the prevalence of deficit budgeting in the Union Government,

a significant portion of fiscal deficit is to be met from borrowings and hence

creation of additional liabilities cannot be ruled out. Thus, Rule 3(4) with

regard to assumption of additional liabilities is inconsistent and needs to be

aligned with the Rule 3(2) regarding fiscal deficit, which stipulates bringing

down fiscal deficit at the level of not more than of 3 per cent of GDP by

31 March 2018.

The Ministry stated (May 2016) that Rule 3(4) needs to be seen in the context

that with a fiscal deficit target of 3 per cent of GDP, creation of additional

liability cannot be avoided, but it will decline with reduction in fiscal deficit. It

also added that additional liability was to be progressively reduced by at least

one percentage point of GDP from the financial year 2005-06 onwards till the

ultimate fiscal deficit target of not more than 3 per cent of GDP is achieved,

and not that additional liability will be completely eliminated.

The reply of the Ministry does not address the issue. Subsequent amendments

in Rule 3(2) shifted the target of bringing down fiscal deficit at the level of not

more than of 3 per cent of GDP to 31 March 2018. Thus, with the shifting of

target dates for achieving the fiscal deficit, appropriate amendments could

have concurrently been brought in Rule 3(4) also to align the related

provisions in the Rules.

Recommendation: To address the issues of inconsistency in the FRBM

Act/Rules, the Government may carry out suitable amendments.


15

2.5 Inconsistency in format of disclosure statement (D-6)

Rule 6(1) of amended FRBM Rules requires that in order to ensure greater

transparency in its fiscal operation in the public interest, the Central

Government shall at the time of presenting the Annual Financial Statement

and the Demands for Grants, make disclosures in prescribed Form (D-6) with

regard to expenditure incurred on grants for creation of capital assets

(refer Annex 1.1). This disclosure statement is presented in the Expenditure

Budget Volume-I in a different format from FY 2011-12, although the Rule

6(1) was notified in May 2013. This disclosure statement appended in the

Expenditure Budget Volume-I from FY 2011-12 onwards has a different

format which varies from the prescribed Form (D-6). The disclosure does not

provide details of actual expenditure data for previous year (Y-1), as required

under the format prescribed by FRBM Rules.

The Ministry accepted (May 2016) the audit observation.

Recommendation: The Government should follow the format of Form D-6 as

prescribed under the FRBM Rules.

Conclusion

After introduction of FRBM Act, the Government had been continuously

deferring the fiscal targets. During 2014-15, in respect of effective revenue

deficit and revenue deficit, the annual reduction targets set out by the

Government were not in accordance with the provisions of the Act/Rules.

Between February 2013 and February 2015, the target dates set out in MTFP

Statement for effective revenue deficit and revenue deficit were inconsistent

with the FRBM Act and Rules. Further, there is inconsistency between

provisions made under the FRBM Act and Rules made thereunder on

assumption of additional liabilities.


16

The Government set the targets for various fiscal indicators in terms of

percentage of GDP. For FY 2014-15, the GDP figure was assumed by the

Government based on the GDP growth recorded in previous year viz. 2013-14

(old series with 2004-05 as the base year). Accordingly, in the Budget at a

Glance 2014-15 presented on 10 July 2014, GDP was projected at

` 128,76,653 crore assuming 13.4 per cent growth over the advance estimates

of 2013-14 (` 113,55,073 crore) released by the Central Statistical Office

(CSO), Ministry of Statistics and Programme Implementation. However, the

CSO on 30 January 2015 notified the new series of national accounts

containing the new series of GDP, revising the base year from 2004-05 to

2011-12. As a result of this revision, the GDP data for FY 2014-15 (old series

with 2004-05 as base year) was not available. Consequently, for analysis of

targets for FY 2014-15, the first revised estimates (R1) of GDP (new series

with 2011-12 as base year) released by CSO on 8 February 2016 has been

adopted in this report, and for earlier years the old series of GDP figures have

been adopted.

This chapter analyses the extent of achievement of various fiscal indicators

during FY 2014-15 as compared to the targets set in the FRBM Act/Rules

(as amended from time to time). Besides, the trend analysis from FY 2005-06

in respect of various fiscal indicators/parameters have also been made in this

chapter.

3.1 Revenue Deficit

Section 2(e) of FRBM Act defines revenue deficit as the difference between

revenue expenditure and revenue receipts, which indicates increase in the

liabilities of the Central Government without corresponding increase in the

assets of the Government.

3.1.1 Revenue Deficit target

The FRBM Act as notified in August 2003 had stipulated elimination of

revenue deficit by March 2008. Through Finance Act 2004 (September 2004),

Chapter 3: Progress in achievement

of FRBM targets


17

amendment was made in the FRBM Act and the target was shifted to

March 2009. In FRBM Act (amended through Finance Act 2012), the target of

elimination was modified with a new target to restrict revenue deficit to not

more than two per cent of GDP by 31 March, 2015. In the Union Budgets for

2013-14, through MTFP Statement, the target of restricting revenue deficit to

not more than two per cent of GDP was shifted to March 2016. This was

further shifted to March 2017 through the MTFP Statement placed along with

the Budget of 2014-15. This target was further extended to March 2018

through the Finance Act 2015.

3.1.2 Trend of Revenue Deficit

Following Graph-1 shows the trend of revenue deficit as a percentage of GDP

over the period from 2005-06 to 2014-15:

Graph-1: Trend of Revenue Deficit: 2005-15

Source: For BE/Target - MTFP Statement; For Actuals – Budget at a Glance (BAG) and

Union Government Finance Accounts (UGFA). For calculation of Actuals (UGFA), GDP (old

data series) upto 2013-14 has been adopted and for 2014-15, R1 GDP figure (new series)

released in February 2016 has been adopted.

Note: Data in absolute terms for deficits is at Annex 3.1. The actual deficit figures as per

Union Government Finance Accounts in some years differ from those shown in the Budget at

a Glance because the Budget at a Glance figures are not being computed exactly as per the

definition of revenue deficit provided in the FRBM Act.

The analysis of Graph4 and related data above reflects that up to FY 2007-08,

the Revenue Deficit was treading in line with fiscal consolidation path

envisaged in the FRBM Act/Rules. However, in FY 2008-09 a spike was

4 In Budget at a Glance, the figures of deficit are worked out by disregarding/netting certain transactions contrary to the definitions provided in the FRBM Act. In this context, para 3.2.3 further elucidates the background.

05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15

BE/Target 2.7 2.1 1.5 1.0 4.8 4.0 3.4 3.4 3.3 2.9

Actuals(BAG) 2.6 1.9 1.1 4.5 5.2 3.3 4.4 3.6 3.1 2.9

Actuals(UGFA) 3.0 3.1 1.7 6.3 5.4 3.3 4.4 3.6 3.1 2.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

As

pe

rce

nta

ge

to

GD

P


18

noticed, thereafter the revenue deficit as percentage of GDP showed a trend

converging towards the budgeted level.

3.1.3 Revenue Deficit during 2014-15

For FY 2014-15, the Government had set revenue deficit target at 2.9 per cent

of GDP which showed 0.4 per cent reduction from the level of 3.3 per cent for

the year 2013-14 (as discussed in Para 2.3). The calculation for computing the

revenue deficit is as under:

Table-3 : Revenue Deficit Estimate and Actuals: 2014-15

Component

Revenue

Expenditure

(1)

Revenue

Receipt

(2)

Revenue

Deficit (RD)

(1-2)

RD as % of

GDP

(As in Budget

at a

Glance/MTFP)

(`̀̀̀ in crore)

Budget Estimates 15,68,111 11,89,763 3,78,348 2.9

Actuals 14,66,992 11,01,472 3,65,520 2.9

Variation with reference to Budget Estimates

-1,01,119

(-6.45%)

-88,291

(-7.42%)

-12,828

(-3.39%)

-

Source: Budget at a Glance

Note: As per Union Government Finance Accounts, the revenue deficit for FY 2014-15 works

out at ` 3,66,228 crore (Difference between revenue expenditure of ` 16,95,137 crore and

revenue receipt of ` 13,28,909 crore).

The actual revenue deficit in 2014-15 was contained at the budgeted level, but

the required target under the FRBM Act/Rules, viz. not more than 2 per cent

of GDP by 31 March 2015 was breached. Further, the annual reduction target

equivalent to 0.6 per cent or more of GDP also could not be achieved, as the

reduction in 2014-15 was 0.4 per cent with reference to RE 2013-14, as

discussed in para 2.2.

3.2 Fiscal Deficit

Section 2(a) of FRBM Act, defines fiscal deficit as the excess of total

disbursements from the Consolidated Fund of India (CFI), excluding

repayment of debt, over total receipts into the Fund (excluding the debt

receipts), during a financial year.

3.2.1 Fiscal Deficit target

The FRBM Act as notified in August 2003 envisaged achieving fiscal deficit

of not more than three per cent of GDP by March 2008. However, through


19

Finance Act 2004 (September 2004), the target was shifted to March 2009. To

achieve this target, the fiscal deficit was to be reduced annually by an amount

equivalent to 0.3 per cent or more of the GDP beginning with FY 2004-05.

Further, the amended FRBM Rules notified in May 2013 stipulated that in

order to achieve the target of fiscal deficit of not more than three per cent of

GDP by 31 March 2017, the Central Government shall reduce such deficit by

an amount equivalent to 0.5 per cent or more of the GDP at the end of each

financial year, beginning with FY 2013–14. Subsequently, through Finance

Act, 2015, the fiscal deficit target under the FRBM Act was extended to

March 2018.

3.2.2 Trend of Fiscal Deficit

Graph-2 below presents the trend of fiscal deficit as a percentage of GDP


Graph-2: Trend of Fiscal Deficit: 2005-15





Note: Data in absolute terms for deficits is at Annex 3.1. The actual deficit figures as per

Union Government Finance Accounts in some years differ from those shown in the Budget at

a Glance because the Budget at a Glance figures are not being computed exactly as per the

definition of fiscal deficit provided in the FRBM Act.

Analysis of data in the above Graph reflects that up to the FY 2007-08, the

trend of fiscal deficit was in line with fiscal consolidation path envisaged in

the FRBM Act/Rules. However, from 2008-09 onwards, it started deviating

from the path. The estimate for fiscal deficit for FY 2008-09 was 2.5 per cent

of GDP, however, it ended up at 6.0 per cent of GDP. The estimate for

2009-10 was raised to the level of 6.8 per cent (5.5 per cent in the interim

Budget), in view of bleak outlook for the growth in the world economy. From

05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15

BE/Target 4.3 3.8 3.3 2.5 6.8 5.5 4.6 5.1 4.8 4.1

Actuals(BAG) 4.1 3.5 2.7 6.0 6.4 4.9 5.7 4.8 4.4 4.1

Actuals(UGFA) 4.5 4.3 3.3 7.7 6.7 4.9 5.7 4.9 4.4 4.1

0.0

1.02.03.0

4.05.06.0

7.08.0

As

pe

rce

nta

ge

to

GD

P


20

2011-12, fiscal deficit has shown a declining trend and it has come down from

5.7 per cent in 2011-12 to 4.1 per cent in 2014-15.

3.2.3 Fiscal Deficit during 2014-15

For FY 2014-15, the Government had set fiscal deficit target at 4.1 per cent of

GDP which showed 0.5 per cent reduction from the revised fiscal deficit target

of 4.6 per cent for the year 2013-14. The calculation for computing fiscal

deficit is as under:

Table-4: Fiscal Deficit-Budget Estimate and Actuals: 2014-15

Component

Actual

Expenditure

(1)

Non-debt

Receipts

(2)

Fiscal Deficit

(FD)

(1-2)

FD as % of

GDP

(As in Budget

at a Glance/

MTFP)

(` in crore)


Actuals 16,63,673 11,52,947 5,10,726 4.1

Variation with

reference to

Budget Estimates

-1,31,219 (-7.31%)

-1,10,768 (-8.77%)

-20,451

(-3.85%)

-


Note: As per Union Government Finance Accounts, the fiscal deficit for FY 2014-15 works out

at ` 5,15,948 crore (Excess of total disbursements from CFI excluding repayment of debt

amounting to ` 19,09,144 crore over total receipts into the CFI excluding the debt receipts

amount to ` 13,93,196 crore).

In 2014-15, fiscal deficit was contained at 4.1 per cent of GDP, i.e. at the

budgeted level and the Government also achieved the annual reduction target

of 0.5 per cent as discussed in para 2.2.

The figures of revenue and fiscal deficits reported in the Budget at a Glance of

the Union Budget differ, in some years, from those indicated/derived from

Annual Financial Statements/Union Government Finance Accounts of the

respective years. On this issue, the CAG of India in October 2007 had drawn

attention of the then Finance Minister. Apart from that, the matter was also

reported in the CAG’s Audit Reports on the accounts for FY 2004-05,

2005-06, 2007-08, 2008-09 and 2009-10 of the Union Government. The then

Finance Minister while explaining the difference in revenue and fiscal deficits,

in December 2007 had clarified that the procedure of depicting net

expenditure in the Budget at a Glance (Gross expenditure as reported in AFS

minus non-cash outgo item) had been followed over the years for budgeting


21

and accounting of Government transactions. Subsequently, in Budget speech

for FY 2008-09 the then Finance Minister acknowledged that significant

liabilities of the Government on account of oil, food and fertiliser bonds were

currently below the line, though the accounting arrangement was consistent

with the past practice. He further acknowledged that the fiscal and revenue

deficits were understated to that extent and there was need to bring these

liabilities into the fiscal accounting. However, the practice of netting certain

transactions for arriving at the figure of revenue and fiscal deficits in the

Budget at a Glance is still in practice in the Union Budget. Any netting of an

item of revenue or capital expenditure that affects the revenue or fiscal deficit

is inconsistent with the definition of these deficits under the FRBM Act.

3.2.4 Revenue Deficit as a component of Fiscal Deficit

Fiscal deficit necessitates additional borrowings, having an impact on inter-

generational fiscal management. Ideally, the borrowing should be undertaken

for investment purposes only. This requires the Government not to use

national savings to finance consumption. To quote 13th FC, “all items of

consumption expenditure need to be financed from current receipts, a practice

which is widely implemented in most countries that have successfully

addressed the issue of fiscal responsibility. While some allowances may be

made for revenue deficits during recessionary phases, the medium-term fiscal

framework must plan for all current expenditures to be financed entirely out of

current revenues”. Graph-3 depicts that the major portion of fiscal deficit

was on account of imbalance in current expenditure resulting into revenue

deficit averaging 67.8 per cent of fiscal deficit over the period from 2005-06

to 2014-15:


22

Graph-3: Trend of Revenue Deficit as component of Fiscal Deficit: 2005-15

Source: RD as %age of FD(BAG) - Budget at a Glance; and RD as %age of FD(UGFA) - Union

Government Finance Accounts.

Note: Data in absolute terms for deficits is at Annex 3.1.

The amended FRBM Act/Rules envisages fiscal deficit of not more than 3 per

cent of GDP and revenue deficit not more than 2 per cent of GDP, i.e. revenue

deficit should be two-thirds of fiscal deficit. Graph-3 shows that during the

post financial crisis period, the desired level (66 per cent or two-thirds of

fiscal deficit) of revenue deficit was achieved only in FY 2010-11. However,

from FY 2011-12 onwards, the position had deviated from the desired level.

3.2.5 Transactions affecting the computation of deficit indicators

During the course of audit of accounts for FY 2014-15 of the Union

Government, it was noticed that certain transactions and financial

eventualities, such as misclassification of expenditure, accruing of one time

receipts, short transfer of levies/cess to the designated funds, non-recognition

of losses in the operation of National Small Savings Fund (NSSF), short

assignment of net proceeds to States, and unpaid expenditure on subsidies, had

affected or had the bearing to affect the computation of prescribed deficit

indicators set out in the Act and the Rules made thereunder. These transactions

are discussed in succeeding paras.

3.2.5.1 Understatement of Revenue Deficit due to misclassification of

expenditure

During the audit of Union Government Accounts for FY 2014-15, a number of

instances of misclassification of expenditure of revenue nature as capital

expenditure and vice versa were noticed. These instances were reported in

Para 4.6 of CAG’s Report No.50 of 2015. As a result of obtaining budget

provisions under incorrect head of accounts, and subsequent booking of

05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15

RD as %age of FD(BAG) 63.0 56.3 41.4 75.2 81.0 67.5 76.4 74.3 71.0 71.6

RD as %age of FD(UGFA) 66.5 72.6 51.8 82.0 81.6 66.2 76.3 73.7 71.0 71.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

In p

er

cen

tRD as %age of FD(BAG)

RD as %age of FD(UGFA)


23

expenditure there against resulting in misclassifications, the capital

expenditure of the Union Government in FY 2014-15 was overstated by

` 748.43 crore and understated by ` 522.67 crore, leading to net overstatement

of capital expenditure by ` 225.76 crore. Correspondingly, revenue deficit for

FY 2014-15 was understated by an equivalent amount of ` 225.76 crore, as

detailed in Annex-3.2.

The Ministry stated (May 2016) that misclassification of expenditure, if any is

happening despite instructions issued to all Ministries/ Departments to

exercise extreme caution while booking expenditure. It added that the matter

may be taken up with the concerned Ministries / Departments by Audit.

The reply is in contravention to provision contained in Section 6(1) of FRBM

Act which requires that the Central Government shall take suitable measures

to ensure greater transparency in its fiscal operations. Being the administrative

Ministry for implementation of provisions of the Act, merely issuing

instructions to various Ministries to exercise due caution to avoid

misclassification do not absolve the Ministry of Finance from the

responsibilities mandated under the FRBM Act.

Recommendation: Budgetary provisioning as well as their accountal need to

be in harmony with the codal provisions relating to classification structure of

accounts to avoid misclassification of expenditure.

3.2.5.2 Contraction of Revenue Deficit due to one-time receipts in

2014-15

Levy on coal blocks: The Hon’ble Supreme Court had cancelled (September

2014) allocation of 204 captive coal blocks and imposed additional levy

@ ` 295 per ton on coal extracted since commencement of production in those

coal bocks till the date of its order (i.e. 24 September 2014) to be deposited in

Government account by 31 December 2014 and for the period from 25

September 2014 to 31 March 2015 @ ` 295 per ton to be deposited by 30 June

2015. Against the total additional levy of ` 9,518 crore to be received5 (for

coal extracted up to 24 September 2014) by 31 December 2014, ` 6,150 crore

were received by the Government till 31 March 2015.

5 Source: Reply/information received from Ministry of Coal


24

Receipt from spectrum auction: During 2014-15, the Government had

received ` 30,624 crore from ‘Other Communication Services’. On scrutiny of

the transactions, it was observed that out of ` 30,624 crore, receipts amounting

to ` 10,791 crore were collected from spectrum auction which had usage

rights of 20 years. Hence, ` 10,791 crore received by the Ministry was of the

nature of one-time receipt against the auctioned rights for 20 years.

Thus, one-time receipts of ` 16,941 crore helped the Government in

containing the revenue deficit, which would have been higher but for these

receipts. The fact that certain one-time receipts budgeted in 2014-15 would not

be available in 2015-16 and 2016-17 was also accepted by the Government in

its MTFP Statement for FY 2014-15.

The Ministry stated (May 2016) that the observation was factual in nature and

does not warrant any reply/action.

3.2.5.3 Short/non transfer of levies/cess to earmarked funds

Cesses are statutory levies whose proceeds are earmarked for utilisation for

specific purposes. The revenue from cess is therefore not shared by Central

Government with the States. In Para No. 2.3 of CAG’s Report No. 50 of 2015

on the accounts for FY 2014-15 of the Union Government, non-transfer of

` 8,123 crore, collected under different categories of levies and cess forming

part of tax/non-tax revenue, to the funds earmarked for the purpose have been

reported. Details of such cess/levy collected and transferred to designated

funds in the Public Account by the Government is at Annex-3.3. Such

collections were meant to be utilised for specific purposes. However, the

Government did not transfer the entire levy/cess collected to the designated

funds. Further, there is no disclosure in the annual accounts or in the Budget

documents with regard to the utilisation of cess collected for the intended

purpose and unutilised balances. This led to corresponding decrease of

revenue/fiscal deficit by ` 8,123 crore in 2014-15.

The Ministry stated (May 2016) that the audit observation has been made on

some selected Funds. Ministry offered following comments in support of its

stand:

(i) While it is true that the cesses/levies are levied for specific purposes, it

is also the responsibility of the Government, as custodian of public


25

money, that the resources realized are productively spent and deployed

for the purpose for which they were levied;

(ii) While rationally applying the resources, the capacity of the

Ministry/Department or the progress of the scheme/programme is also

required to be taken into account;

(iii) Funds parked in the reserve/corpus funds operated in the Public

Account without being utilized create a liability to the Government on

one hand, the scarce resources of the Government are held in the

Public Account without productive application;

(iv) Keeping the money in the Public Account unutilized would deprive the

sectors/schemes/programmes where resources are needed for effective

implementation;

(v) Prudent financial management requires distribution of scarce resources

among various competing needs of the Government depending on the

requirement/progress of the Government schemes;

(vi) Transfer to the dedicated fund such as Prarambhik Shiksha Kosh is

based on estimated collection of education cess, which is approved by

Parliament through Appropriation Act. In case of excess collection

over estimated collection, the difference in the estimated collection and

actual collection cannot be transferred to the account without valid

appropriation;

(vii) Universal access levy (UAL), which is transferred to Universal Service

Obligation Fund (USOF), is not a cess and UAL forms part of non-tax

receipt of the Government. USOF has a huge commitment towards

implementation of National Optical Fibre Network and Government

will finance the expenditure on NOFN as and when the scheme picks

up;

(viii) It has been explained to the Public Accounts Committee by Ministry of

Finance, vide this Ministry’s letter dated 30.1.2016, that Government

may credit such funds to USOF for being utilized exclusively for

meeting Universal Service Obligation;


26

(ix) In case of Cess on Tea, Cess on Films, there are no dedicated funds

created in the Public Account for regulating the flow of funds.

However, it is incorrect to state that Government has spent less on

development of these sectors. Government is, in fact, spending

sufficient funds commensurate with receipts in the form of cesses in

these sectors; and

(x) It is therefore incorrect to state that Government did not transfer the

cesses/levies to the designated funds in order to achieve the fiscal

deficit as this observation would be narrow in perspective.

Reply of the Ministry is not acceptable on following grounds:

(i) The levy/cess collected are for specific purpose usages and to

provide the intended service in return of the cess/levy charged.

Hence, the Government has a specific responsibility and liability as

well for providing the service. Till the service is not rendered fully,

the unspent collections need to be transparently reflected in the

accounts of the Union Government.

(ii) In case of excess collection of cess than estimated in the Budget,

the transfer of such collection to the designated funds through the

Appropriation Act could also have been augmented through the

available mechanism of proposing Supplementary Demands for

Grants.

(iii) In respect of levy/cess for which comment has been made in the

para above, there exists specific purpose Funds in the Public

Account as detailed in Annex-3.3.

(iv) The UAL is a levy collected as a percentage of the revenue earned

by the operators under various licenses, to be utilised by the

Government for providing access to basic telegraph services in

rural and remote areas. Thus, being a specific purpose levy

accounted for under non-tax revenue has to be utilised for the

purpose for which it was collected. For its transparent accountal, a

separate USO Fund has been opened in the Public Account.

However, the position of unspent amount of levy so far collected


27

for this purpose has not been appearing in the USO Fund

maintained in the Public Account.

Recommendation: The Government may transfer specific purpose

levies/cess collected to the funds earmarked for the purpose.

3.2.5.4 Non recognition of losses under NSSF in CFI

National Small Savings Fund (NSSF) was created in Public Account in April

1999 with the Central Government taking up the responsibility of servicing the

small savings deposits. The fund receives money from subscribers of various

small saving schemes, and invests the balance available with it in Central and

State Government Securities. Before the NSSF was constituted, the small

savings receipts mobilised by the Union Government and on-lent to the States

were treated as capital expenditure of the Union Government and, accordingly,

calculated in its gross fiscal deficit. Shortfall in returns from loans given out of

small savings proceeds and the interest paid on small savings were accounted

for under CFI and hence calculated under its revenue deficit. After the

constitution of the NSSF, however, the income/deficit of NSSF is not being

reflected as part of the Union Government’s revenue deficit. This is because

NSSF operations are being accounted for in the Public Account, and around

half of the outstanding balances under NSSF are accounted for as Public

Account liabilities, instead of being accounted for as internal debt in the CFI.

In this context, the 14th FC had observed that the off-budget nature of NSSF

operations renders them outside the regulatory framework of the FRBM Act,

raising concerns of fiscal transparency and comprehensiveness.

At the end of FY 2014-15, total accumulated deficit in the operation of NSSF

was ` 90,707.56 crore. These deficits are in the nature of loss to the

Government which will have to be borne on revenue account, whenever the

liabilities under NSSF are fully and finally repaid. By keeping the annual loss

in the operation of NSSF under Public Account, the deficit figure for the

relevant year are not reflected fairly.

The Ministry stated (May 2016) that since inception of NSSF in Public

Account, the reflection of deficit as a separate identity is being carried out as

a policy matter approved by Ministry of Finance. It added that the accounting

procedure of NSSF was got approved by the office of Controller General of

Accounts with the office of the CAG. It further stated that outstanding liability


28

of the Central Government on account of NSSF is understated in the accounts

due to netting of NSSF investments in Special State government

securities/other securities and accumulated deficit. A footnote is inserted in

Statement No. 2 of the Finance Accounts showing total outstanding liabilities,

investments and deficits separately.

The issue relating to surplus/deficit in the operation of NSSF was deliberated

amongst the offices of the CAG, the CGA and the Budget Division of the

Ministry of Finance in April 2000. During the deliberation, it was brought out

by the office of the CGA that the deficit which had arisen in the first year of

operation would get adjusted as and when there would be surplus. The

operational loss, which was ` 1681.68 crore at the end of FY 1999-2000,

has steadily increased year after year to ` 90,707.56 crore at the end of FY

2014-15 requiring urgent intervention. Under the present system, the

subscribers of the National Small Savings Schemes on maturity of their

investment are paid (principal/interest) out of the current/fresh subscriptions

flowing to the schemes and operational loss of the year is absorbed in the

scheme itself. Mere disclosure by way of footnote in the Finance Accounts is

not sufficient to mitigate the concern.

Recommendation: A mechanism for recognizing the result of annual

operations of NSSF and its impact on the Government finances may be put in

place.

In reply to the audit recommendation, the Ministry accepted (June 2016) that

administrative intervention is required for making good the accumulated

losses which occurred in NSSF. It further added that if administrative decision

is taken to make good the progressive deficit, this needs to be provided in CFI

(with due appropriation authorised by Parliament) and this will have an

adverse impact on revenue/fiscal deficit of the Government.

Reply of the Ministry underscores the audit contention that the losses in NSSF

affect the computation of prescribed deficit indicators set out in the Act.

3.2.5.5 Net proceeds to States

In terms of Article 279 of the Constitution, the Comptroller and Auditor

General of India is required to ascertain and certify the ‘net proceeds’

(any tax or duty the proceeds thereof reduced by the cost of collection),

whose certificate shall be final.


29

During the certification of ‘net proceeds’ by the CAG, based on the

recommendations of the successive Finance Commissions, it was noticed that

during the period 1996-97 to 2014-15 an aggregated amount of ` 81,647.70

crore was short devolved to the States.

The Ministry stated (June 2016) that the accuracy of the figures intimated by

CAG are required to be ascertained and need to be reconciled with that of

Budget Division, Department of Economic Affairs as the calculations for

State’ share of Central Taxes and Duties are based on set practices and norms

which have been meticulously followed year after year.

With regard to certification of net proceeds of taxes, it is pertinent to mention

that in July 2000 Ministry requested for certification of net proceeds of taxes

afresh with ante-dated effect viz. 1996-97 consequent upon passage of 80th

constitutional amendment. On receipt of request from the Ministry,

clarifications were sought by the office of the CAG followed by reminders,

which were not provided. Certificates on net proceeds were issued by the

office of CAG on 10 February 2016.

Further, the draft certificate of CAG on net proceeds of taxes, together with

detailed calculations were made available on 14 December 2015, 31

December 2015 and 6 January 2016 to the Secretary, Department of Economic

Affairs for their observation, if any. As such opportunity was provided to the

Ministry before issuing the final certificate in terms of Article 279 of the

Constitution.

3.2.5.6 Unpaid expenditure on subsidy

In Para 1.3.2 of CAG’s Report No. 50 of 2015 on the accounts for FY

2014-15 of the Union Government, a mention was made with regard to unpaid

subsidy claims of five Central Public Sector Undertakings6 , amounting to

` 44,941 crore (claims including past years unpaid bills, but excluding last

quarter bills for FY 2014-15 remaining unpaid) in respect of food, petroleum

and fertilizer subsidies.

The Ministry stated (May 2016) that the Government as a going concern

makes payment for the arrears of the past and defers payment to next financial

year on account of various reasons such as non-finalization of accounts by

6 National Fertilizers Ltd., Fertilizers and Chemicals Travancore Ltd., Madras Fertilizers Ltd., Hindustan Petroleum Corporation Ltd., Food Corporation of India Ltd.


30

PSUs. Ministry, for example, stated that arrears of food subsidy is made only

after audit of accounts is complete or Oil Marketing Companies being paid for

last quarter of a financial year after audit of financial results, in the first

quarter of next financial year. Ministry also added that accounts of the Union

and State Governments are prepared on the cash basis and under cash basis

system, expenditure and deficit get impacted at the time/year of discharge of

liabilities.

Though the accounts of the Government is prepared on cash basis, yet the

deferment of liabilities to subsequent year cyclically has a bearing in

computation of fiscal indicators. In the case of outstanding subsidy claims of

Food Corporation of India, the Report No.50 of 2015 of CAG points that it has

continuously increased during the last five years, which is a pointer towards

that this practice may offset the responsibility of the Government to ensure

inter-generational equity in fiscal management as laid down in the Act.

3.3 Effective Revenue Deficit

Section 2(aa) of amended FRBM Act (May 2012) defines ‘effective revenue

deficit’ as the difference between the revenue deficit and grants for creation of

capital assets. The concept of effective revenue deficit was introduced in

Union Budget of 2011-12 to segregate the grants which were used to finance

current expenditure and those used to create capital assets.

14th FC in its Report commented that effective revenue deficit is not

recognized in the standard Government accounting process. To quote the

Commission, - the conventional rule, as understood, of financing current

expenditure by current revenue was discarded and an artificial concept of

effective revenue deficit was introduced in the statute in 2012. The

Commission recommended that the Government should consider omitting the

definition of effective revenue deficit from 1 April 2015. However, the FRBM

Act continues to carry the targets for effective revenue deficit.

3.3.1 Effective Revenue Deficit target

The FRBM Rules notified in May 2013, stipulates that in order to achieve the

target of elimination of effective revenue deficit by 31 March, 2015, the

Central Government shall reduce such deficit by an amount equivalent to

0.8 per cent or more of the GDP at the end of each financial year, beginning


31

with FY 2013–14. However, in the MTFP Statement placed along with the

Union Budget 2013-14, the target was deferred to March 2016. By the Finance

Act 2015, the target was further extended to March 2018.

3.3.2 Trend of Effective Revenue Deficit

The trend of effective revenue deficit as a percentage of GDP over the period

from 2011-12 to 2014-15 is given in Graph-4 below:

Graph-4: Trend of Effective Revenue Deficit: 2011-15





Note: Data in absolute terms for deficits is at Annex 3.1.

During the last four years, ratio of effective revenue deficit to GDP had shown

improvement and came down from 2.9 per cent in FY 2011-12 to 1.9 per cent

in the FY 2014-15. However, despite the downward trend, the Government

was not able to achieve its budgeted targets in any of the four financial years.

Elimination of effective revenue deficit implies that grants for creation of

capital assets must equal the revenue deficit. In other words, the Government’s

revenue expenditure in excess of revenue receipts must be used for creation of

capital assets. Achieving the target requires a correction in the composition of

expenditure mix. In effect, this suggests structural change in design of

schemes so that resources transferred from the Union Government is utilized

for creation of capital assets, rather than funding operational costs. However, it

was noticed that during FY 2011-12, expenditure on grants for creation of

capital assets was 33.6 per cent of revenue deficit (as per Budget at a Glance)

which were 31.8, 36.2 and 35.8 per cent during the next three financial years

i.e. 2012-15 as detailed in Annex-3.1.

2011-12 2012-13 2013-14 2014-15

BE/Target 1.8 1.8 1.8 1.6

Actuals(BAG) 2.9 2.5 2.0 1.9

Actuals(UGFA) 3.3 2.5 2.0 1.9

0

0.5

1

1.5

2

2.5

3

3.5

As

pe

rce

nta

ge

of

GD

P


32

3.3.3 Effective Revenue Deficit during 2014-15

For the year 2014-15 (BE), the Government had set effective revenue deficit

target of 1.6 per cent of GDP which showed 0.4 per cent reduction from the

revised target of 2.0 per cent for the year 2013-14. However, in revised

estimates for 2014-15, in February 2015, the target was raised to 1.8 per cent

of GDP. Table-5 below reflects that there was shortfall of more than 22 per

cent in expenditure on grants for creation of capital assets, leading to around

12 per cent increase in effective revenue deficit over the budget estimates.

Table-5: Effective Revenue Deficit-Budget Estimate and Actuals: 2014-15

Component

Revenue

Deficit

(1)

Grant for creation

of capital assets

(2)

Effective

Revenue

Deficit (ERD)

(1-2)

ERD as

% of

GDP

(` in crore)


Actuals 3,65,520 1,30,760 2,34,760 1.9

Variation with reference to BE

-12,828 (-3.39%)

-37,344 (-22.21%)

24,516

(11.66%)

0.3


Note: As per Union Government Finance Accounts, the effective revenue deficit works out at

` 2,35,468 crore (Difference between revenue deficit of ` 3,66,228 crore and expenditure on

grants for creation of capital assets of ` 1,30,760 crore).

During FY 2014-15, the Government did not achieve the effective revenue

deficit target of 1.6 per cent of GDP, which fell short by 0.3 per cent owing

to reduction in expenditure on grants for creation of capital asset by

22.21 per cent. Further, the Government also could not achieve the mandated

annual reduction target of 0.8 per cent in 2014-15, as the annual reduction was

only 0.4 per cent with reference to revised target of 2.0 per cent of GDP for

the year 2013-14 as discussed in para 2.2.

3.3.3.1 Inconsistency in expenditure on grants for creation of capital

assets

In the Budget document, the figure of actual expenditure incurred on grants

for creation of capital assets appear in Budget at a Glance. In Union

Government Finance Accounts, prepared by the Controller General of

Accounts under the Ministry of Finance, this figure appear in Appendix to

Statement No. 9. On comparison, inconsistencies were noticed between the

two sets of compilation in two financial years, as detailed in Table-6 below:


33

Table- 6: Inconsistency in expenditure on grants for creation of capital assets

(`̀̀̀ in crore)

Year 2011-12 2012-13 2013-14 2014-15

Actuals shown in Budget at a Glance*

1,32,582 1,15,710 1,29,418 1,30,760

Union Government Finance Accounts 1,01,231 1,15,710 1,29,838 1,30,760

Variation 31,351 - 420 -

*Figures of actuals for a particular FY are reflected in the Budget at a Glance of FY+2. For example, in respect of FY 2011-12, the actuals are reflected in the Budget at a Glance of FY 2013-14.

3.3.4 Incorrect estimation of Effective Revenue Deficit target

In order to estimate the effective revenue deficit target of the Government,

every Ministry prepares information containing budget provision under the

object head ‘grants for creation of capital assets’ under various schemes and

programmes as contained in the Detailed Demands of Grants (DDG) of the

respective Ministries and furnish the same to the Ministry of Finance. On the

basis of this information, a statement containing the budget provision on the

object head ‘grants for creation of capital assets’ is appended in the

Expenditure Budget Volume-I.

As per this statement presented with the Budget for FY 2014-15, total budget

provision on grants for creation of capital assets was ` 1,68,104.47 crore.

Audit scrutiny of information contained in this statement in respect of some

Ministries/Departments and its cross-verification with the concerned DDG

revealed that the figures mismatched in the two sets of documents, viz. DDG

and Statement appended with the Expenditure Budget Volume-I, with regard

to budget provision under the head ‘grants for creation of capital assets’.

Some instances of mismatches on the basis of test-checked cases are detailed

in Table-7 below, which resulted in incorrect estimation of effective revenue

deficit:

Table-7: Mismatch in the Budget Estimates on grants for creation of capital assets

(`̀̀̀ in crore)

Sl.

No.

Ministry/

Department

Budget

Estimates in

Expenditure

Budget Vol-I

Budget

Estimates in

the DDG

Difference Remarks

1 2 3 4=3-2 5

1. Law and Justice Nil 847.90 847.90 Provision in DDG was not included in the Statement appended with Expenditure Budget, Vol.I.

2. Health Research Nil 98.00 98.00

3. Revenue Nil 30.00 30.00


34

4. AIDS Control 74.00 0.00 (-)74.00 No provision was found in DDG but was included in Expenditure Budget, Vol.I.

5. Posts 322.01 0.00 (-)322.01 Budget provision was under capital major head of expenditure but wrongly included in Expenditure Budget, Vol.I.

6. Petroleum and Natural Gas

42.00 0.00 (-)42.00 Provision in DDG was under ‘grants-in-aid general’ but wrongly included in Expenditure Budget, Vol.I.

7. Development of North Eastern Region

1,666.00 1,827.30 161.30 Different figures were included in the Expenditure Budget, Vol.I. than those furnished by the Ministries concerned.

8. Health and Family Welfare

4,122.47 4,045.04 (-)77.43

9. School Education and Literacy

10,383.77 10,473.39 89.62

Note: Figures in minus represent overstatement of effective revenue deficit.

As a result of deficiency in the mechanism of estimating provision in respect

of grants for creation of capital assets, effective revenue deficit was

underestimated by ` 1,226.82 crore and overestimated by ` 515.44 crore for

FY 2014-15. The net impact of test checked cases was underestimation of

effective revenue deficit by ` 711.38 crore.

The Ministry stated (May 2016) that Annex-6 of Expenditure Budget Vol.-I is

prepared on the basis of information provided by Ministry and the reasons for

variation may be taken up with concerned Ministries by Audit.

Reply of the Ministry is not tenable as the Ministry of Finance, being the focal

point for administration of the FRBM Act, should ensure that the information

being disclosed under the Act is complete and accurate.

In respect of observation made at Sl. No. 5 of Table-7, Department of Posts

stated (March 2016) that the expenditure was earmarked for the scheme ‘IT

Induction & Modernization’ under capital segment and the information was

incorporated in the statement as per prevailing trend.

Reply of Department of Posts is not tenable as the budget provision for the

earmarked expenditure were obtained under the object head 52 below capital

major heads 5201 and 4552 and wrongly included in the disclosure statement

as grants for creation of capital assets under the object head 35.


35

In respect of observation made at Sl. No. 7 of Table-7, Ministry of

Development of North Eastern Region stated (April 2016) that due to

allocation of additional amount of ` 200 crore by Planning Commission (in

June 2014) there was variation with the disclosure statement prepared earlier

at the time of interim Budget 2014-15.

Reply of the Ministry confirms that it had failed to update its position in

disclosure statement in the regular Budget placed before Parliament in July

2014, resulting in variation in two sets of documents.

3.3.5 Incorrect classification of certain expenditure as grants for

creation of capital assets

In 2014-15, a provision of ` 1,68,104.47 crore was made for grants for

creation of capital assets in 41 Ministries as reflected in the Statement

appended with Expenditure Budget, Volume-I. Audit test checked the budget

provision on grants for creation of capital assets in some selected

schemes/projects across 13 Ministries/Departments involving provision of

` 78,271.237 crore. Observations in this regard are discussed in succeeding

paras.

3.3.5.1 Expenditure on procurement and maintenance treated as grants

for creation of capital assets

Section 2(bb) of FRBM Act as amended in 2012 stipulates that ‘grants for

creation of capital assets’ means the grants in aid given by the Central

Government to the State Governments, constitutional authorities or bodies,

autonomous bodies, local bodies and other scheme implementing agencies for

creation of capital assets which are owned by the said entities. As per this

definition, all expenditure classified as ‘grants for creation of capital assets’ by

the respective Ministries to above entities would qualify as such under this

definition of FRBM Act. The Government has not laid down

7 Ministry of Development of North-Eastern Region - ` 948 crore, Ministry of Minority

Affairs - ` 1,220.10 crore, Ministry of Panchayati Raj - ` 5,628 crore, Ministry of Rural

Development - ` 49,365.02 crore, Ministry of Tribal Affairs - ` 1,054 crore, Department of

Health and Family Welfare - ` 2,053.42 crore, Ministry of Information and Broadcasting -

` 543.65 crore, Ministry of Statistics and Programme Implementation - ` 3,950 crore,

Ministry of Women and Child Development - ` 941.52 crore, Department of Agriculture

Research and Education - ` 1,300.54 crore, Department of School Education and Literacy -

` 7,659.50 crore, Department of Higher Education - ` 3,504.50 crore, Department of

Chemical and Petrochemicals - ` 102.98 crore


36

criteria/guidelines to decide which expenditure incurred by the grantee

organisation will fall under the category ‘capital creation’. In absence of any

laid down criteria/guidelines, the following observations are made.

• In respect of flagship schemes, viz. Mahatma Gandhi National Rural

Employment Guarantee Act (MNREGA) and Members of Parliament

Local Area Development (MPLAD), expenditure to the extent of

` 32,463.40 crore and ` 3,350 crore respectively, transferred to

State/district authorities, were treated as grants for creation of capital

assets during FY 2014-15. It was noticed that some components of

these schemes also included expenditure on certain activities which

were either in the nature of maintenance of existing assets or

procurement not resulting in creation of capital assets. Details of such

components are mentioned in Box-4 below:

Box-4: Works under the scheme not resulting in creation of capital assets

Scheme Component of works

MNREGA • Drought proofing, including afforestation and tree plantation

• Plantation, horticulture, land development

• Renovation of traditional water bodies, including de-silting of tanks

• Maintenance of assets created under the Scheme

MPLAD • Purchase of books for school, college and public library • Purchase of tricycles and wheelchair (manual/battery operated) • Purchase of artificial limbs for differently-abled persons • Expenditure on purchase of software and imparting of training for

the purpose • Purchase of mobile library and furniture

Since, expenditure on above categories relates to maintenance of existing

assets or procurement not resulting in creation of capital assets, their treatment

as grants for creation of capital assets was not in order. In the absence of

itemised expenditure incurred on above mentioned components of the two

schemes, Audit could not quantify the amount of overstatement of expenditure

on grants for creation of capital assets.

• Multi-Sectoral Development Programme (MsDP) is an area

development initiative of the Ministry of Minority Affairs to address

the development deficits of minority concentration areas by creating

socio-economic infrastructure and providing basic amenities. During

FY 2014-15, under MsDP ` 609.35 crore was allocated by the Ministry

to the States as grants for creation of capital assets. Test check of these


37

grants revealed that grant of ` 80.81 crore released by the Ministry

included funds for ‘skill development training programme’ and

‘purchase of bicycle, machine tools and equipment’. Since expenditure

incurred on above components does not result in creation of capital

assets, the classification would not be in order. This resulted in

understatement of effective revenue deficit of the Government by

` 80.81 crore.

In respect of MNREGA and MPLAD observations, the Ministry stated

(May 2016) that the components of work mentioned are either related to

substantial up-gradation of assets or acquiring capital equipment, etc. and

therefore qualify for booking under grants for creation of capital assets. The

Ministry, further added that as the observations of audit relates to Ministry of

Rural Development (in respect of MNREGA), Ministry of Statistics and

Programme Implementation (in respect of MPLAD), and Ministry of Minority

Affairs (in respect of MsDP), the same may be taken up with the concerned

Ministry by the Audit.

The reply of the Ministry is contradictory to the practices followed across

some Ministries8, as scrutiny of sanction orders by Audit revealed that in these

Ministries grants given for procurement of equipment, library books,

organising training, etc. had been classified under the object head grants-in-aid

general. Further, as the administration of FRBM Act, including preparation of

Central Budget, monitoring of budgetary position, among other related

business of the Government of India rests with the Ministry of Finance, the

Ministry is required to appropriately follow up this issue with the concerned

Ministries and address the audit concern.

Ministry of Statistics and Programme Implementation in respect of

observation on components of works under MPLAD scheme stated (April

2016) that the scheme is essentially for development works and creation of

durable community assets. It added that certain non-durable items (listed in

Annexure-IIA of the scheme guideline and also pointed out by Audit) have

been permitted under the scheme with the approval of its Integrated Finance

Division, keeping in view the locally felt needs. Further, item wise break up of

expenditure under MPLAD scheme is centrally not maintained.

8 Ministry of Home Affairs, Ministry of Women and Child Development, Ministry of Tribal

Affairs


38

Reply of the Ministry confirms that expenditure on certain non-durable items

have been permitted under the scheme. Hence, inclusion of such expenditure

under the scheme as grants for creation of capital assets was not in order.

Requirement for laying down criteria/guidelines:

On the issue of classification of expenditure as grants for creation of capital

assets, it is pertinent to mention that the High Level Expert Committee on

Efficient Management of Public Expenditure, headed by Dr. C. Rangarajan, in

Para 5.38 of its Report had recommended (July 2011) setting up an expert

group tasked to formulate the precise definition and criteria for classifying

expenditure as “Government revenue expenditure for creation of tangible

assets” to ensure a fairly rigid compliance to the requirements to prevent

misclassification. Further, the requirement of maintaining assets

records/registers and making them available in public domain was also

emphasised. However, no such expert group has been set up by the

Government.

Thus, due to absence of defined criteria for classification of expenditure as

‘grants for creation of capital assets’ there exists inconsistent and varying

practices in the treatment of such expenditures.

Recommendation: To facilitate correct identification and booking of

expenditure as grants on creation of capital assets, the Government may

consider defining the criteria for classification of expenditure as grants for

creation of capital assets and its compliance by the Ministries/Departments.

3.3.5.2 Incorrect classification of expenditure under IAY and RAY

Section 2(bb) of FRBM Act defines grants for creation of capital assets as

grants given by the Central Government to the State Governments,

constitutional authorities or bodies, autonomous bodies, local bodies and other

scheme implementing agencies for creation of capital assets which are owned

by the said entities. Indira Awas Yojana9 (IAY), was a flagship scheme of the

Ministry of Rural Development, providing assistance to Below Poverty Line

(BPL) families, who are either houseless or having inadequate housing

facilities for constructing a safe and durable shelter. During FY 2014-15,

expenditure of ` 11,096.90 crore was incurred by the Ministry on the IAY

9 IAY was subsumed in the Scheme Pradhan Mantri Awas Yojana from FY 2016-17.


39

scheme and categorised as grants for creation of capital assets. Under this

scheme, the grants are released by the Ministry to various State Governments

which in turn releases grants/assistance to the beneficiaries under the scheme.

We noticed that the funds under the scheme were utilised for providing

housing facilities to BPL beneficiaries and the houses were owned by

the beneficiaries and not by the grantee entities/organisations. Hence,

categorising expenditure on IAY as grant for creation of capital assets was

incorrect. This had resulted in understatement of effective revenue deficit by

` 11,096.90 crore.

Similarly, Rajiv Awas Yojana 10 (RAY) was a pioneering scheme of the

Ministry of Housing & Urban Poverty Alleviation with the objectives of

improving and provisioning of housing, basic civic infrastructure and social

amenities in urban slums. During FY 2014-15, expenditure of ` 1,092.96 crore

was incurred by the Ministry on the RAY and categorised as grants for

creation of capital assets. Under this scheme, the grants are released by the

Ministry to various State Governments which in turn releases grants to the

beneficiaries under the scheme.

Since the expenditure under the scheme was utilised for providing housing in

urban slums not owned by the grantee entities/organisations, categorising them

as grants for creation of capital assets was incorrect. This, resulted in

understatement of effective revenue deficit by ` 1,092.96 crore.

Ministry stated (May 2016) that these grants are for creation of assets for the

beneficiaries and therefore appropriately classified. The Ministry further

added that the matter regarding IAY and RAY pertains to Ministry of Rural

Development and Ministry of Housing and Urban Poverty Alleviation

respectively and Audit may take up this issue with the concerned Ministry /

Department.

As per definition of grants for creation of capital assets, the assets being

created out of grants would be owned by the grantee organisation. Since the

beneficiaries under the schemes are not the scheme implementing

entities/grantee organisation, the assets owned by them would not qualify to be

classified as arising from grants for creation of capital assets.

10 RAY was subsumed in the Mission ‘Housing for All’ in May 2015.


40

Recommendation: The Government may exclude such grants, which does not

lead to creation of assets owned by the grantee organisations, from

categorising as grants for creation of capital assets.

3.4 Liability of the Government

According to Section 2(f) of FRBM Act, total liabilities mean the liabilities

under the CFI and the Public Account of India. Prudential debt management

consistent with fiscal sustainability is one of the objectives of FRBM Act. The

Government resorts to borrowing from internal and external sources,

collectively known as Public Debt, to finance its deficit. The internal

borrowings mainly comprise of market loans and special securities issued to

the RBI. In addition to this, the resources available in the Public Account, in

respect of which the Government functions as a trustee, are also liabilities

which in turn are used to finance the deficit.

3.4.1 Liability target

Rule 3(4) of the FRBM Rules requires that the Government shall not assume

additional liabilities (including external debt at current exchange rate) in

excess of 9 per cent of GDP for FY 2004-05 and in each subsequent financial

years the limit of 9 per cent shall be progressively reduced by at least one

percentage point of GDP

Following Table-8 shows achievement of target in respect of additional

liabilities from 2004-05 to 2013-14.

Table-8: Additional Liability of the Government: 2004-14

(`̀̀̀ in crore)

Financial

year

Liability at

the

beginning

of the year

(1)

Liability

at the end

of the

year

(2)

Additional

liability

during the

year

(3= 2-1)

GDP

(4)

Additional

liability as

%age of

GDP

(3/4)

FRBM

target of

additional

liability as

%age of

GDP

2004-05 16,59,634 18,23,279 1,63,645 32,42,209 5.0 ≤9

2005-06 18,23,279 19,68,799 1,45,520 36,93,369 3.9 ≤8

2006-07 19,68,799 21,85,049 2,16,250 42,94,706 5.0 ≤7

2007-08 21,85,049 24,76,357 2,91,308 49,87,090 5.8 ≤6

2008-09 24,76,357 28,40,135 3,63,778 56,30,063 6.5 ≤5

2009-10 28,40,135 31,60,924 3,20,789 64,77,827 5.0 ≤4


41

Financial

year

Liability at

the

beginning

of the year

(1)

Liability

at the end

of the

year

(2)

Additional

liability

during the

year

(3= 2-1)

GDP

(4)

Additional

liability as

%age of

GDP

(3/4)

FRBM

target of

additional

liability as

%age of

GDP

2010-11 31,60,924 35,32,450 3,71,526 77,84,115 4.8 ≤3

2011-12 35,32,450 41,51,284 6,18,834 90,09,722 6.9 ≤2

2012-13 41,51,284 47,06,586 5,55,302 1,01,13,281 5.5 ≤1

2013-14 47,06,586 52,59,310 5,52,724 1,13,55,073 4.9 0

Source: Union Government Finance Accounts

As may be seen from Table-8, the Government did contain additional

liabilities within the targets envisaged in the Act up to 2007-08. Thereafter,

this target could not be achieved. Moreover, since no terminal year or

terminal ceiling in terms of percentage is fixed for additional borrowing in the

Act/Rules, after FY 2013-14 no additional borrowing would have been

resorted to by the Government, though this scenario is not possible to

visualise given the deficit budgeting of the Government. Thus, there appears

to be inconsistency in the Act/Rules, which needs to be addressed, as pointed

The Ministry stated (May 2016) that the slippage after 2007-08 was due to

increase in fiscal deficit / borrowings of Government after global financial

crisis. It added that the position has been explained in the FRBM statements

of the respective years and the Government is committed to the path of fiscal

consolidation as mandated under the FRBM Act. It further added that

outstanding liabilities of the Government as a percentage of GDP are

showing declining trend.

The explanation for deviation relating to assumption of additional liabilities is

appreciable. However, post FRBM period, the trends as reflected in the

Table-8 above do not show much improvement in the containment of creation

of additional liabilities as percentage of GDP, besides having inconsistency in

the Act / Rules which needs to be addressed clearly as the additional liabilities

cannot be completely eliminated.

out in Para 2.4 of this Report.


42

3.4.2 Trend of Outstanding liability

Following Graph-5 shows the trend of outstanding liability of the

Government as a percentage of GDP as compared to estimates included in

MTFP Statement over the period from 2005-06 to 2014-15:

Graph-5: Trend of Outstanding Liability: 2005-15

Source: Union Government Finance Accounts and GDP (old data series) up to 2013-14. For

2014-15, R1 GDP figure (new series) released in February 2016. The actual outstanding

liability and budgeted outstanding liability in 2004-05 was 68.5 per cent and 56.2 per cent of

GDP respectively.

As seen from Graph-5, the outstanding liability-GDP ratio had shown a

declining trend and it dropped to 46.2 per cent in March 2015 from 53.3 per

cent in March 2006. However, from FY 2011-12 onward the outstanding

liability in terms of GDP outstripped the budgeted level as contained in the

MTFP Statement.

3.4.3 Understatement of Public Account liability

In Para 1.5.1 of CAG’s Report No. 50 of 2015 on the accounts for FY 2014-15

of the Union Government, a comment relating to understatement of Public

Account liability has been included. The understatement of liability by

` 6,70,210 crore was on account of non-inclusion of investments out of NSSF

collections in State Government Securities and India Infrastructure Finance

Company Limited (IIFCL); investment of Post Office Insurance Fund with

private fund managers; and accumulated deficit (loss) in the operation of

NSSF. After adjusting these investments and loss, the net Public Account

Liability was shown in Union Finance Accounts as ` 6,71,010 crore, as

05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15

Outstanding Liability 53.3 50.9 49.7 50.4 48.8 45.4 46.1 46.5 46.3 46.2

BE (MTFP) 68.6 65.7 61.4 59.6 61.4 51.1 44.2 45.5 45.7 45.4

Variation with BE (%) 15.3 14.8 11.7 9.2 12.6 5.7 -1.9 -1.0 -0.6 -0.8

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

As

pe

r ce

nta

ge

of

GD

P


43

against the actual outstanding liabilities of ` 13,41,220 crore 11 in Public

Account. Taking into account the actual liability in the Public Account, the

total liability of the Union Government would be 51.6 per cent of GDP as

against 46.2 per cent in 2014-15, as brought out in Graph-5.

The Ministry stated (May 2016) that depiction of Public Account liability in

the present form is approved on the advice of office of the Comptroller and

Auditor General of India and the understatement of Public Account as pointed

out by Audit is due to difference in perception. The Ministry however brought

out that in the Union Government Finance Accounts, the Public Account

liability is shown net of investments made out of NSSF, accumulated deficit in

NSSF, etc. and accordingly explained.

The reply of the Ministry is not in order. Office of the CAG approved the

accounting procedure relating to creation of NSSF. Netting of liabilities

mentioned in the observation is the decision of the Ministry. Thus,

understatement of Public Account liabilities and its qualification by way of

explanation through footnotes in the Union Government Finance Accounts

does not reflect the true and fair liability position. The amount invested in

IIFCL, investment of Post Office Insurance Fund with the private fund

managers and accumulated loss in the operation of NSSF impacts the Union

Government liabilities in the Public Account and the total liability as a

percentage of GDP gets distorted as a result of the exclusions.

3.5 Guarantees

Central Government extends guarantees primarily for the purpose of

improving viability of projects or activities undertaken by the Government

entities with significant social and economic benefits, to lower the cost of

borrowings as well as to fulfil the requirement in cases where sovereign

guarantee is a precondition for bilateral/multilateral assistance. While

guarantees do not form part of debt as conventionally measured, in the

11 Comprising `11,52,363 crore on account of Small Savings, Provident Funds, etc. and

`1,88,857 crore as reserve funds and deposits. The outstanding liability of `11,52,363 crore on account of Small Savings, Provident Funds etc. has been brought down on account of investment by `5,43,499 crore in Special State Government Securities; `1,500 crore in India Infrastructure Finance Company Limited; `34,504 crore pertaining to Post Office Insurance Fund with private fund managers; besides adjusting `90,708 crore of accumulated deficit in the operation of NSSF.


44

eventuality of default, they have the potential of aggravating the debt position

of the Government.

3.5.1 Guarantees target

FRBM Act and the Rules made thereunder stipulate that the Central

Government shall not give guarantees aggregating to an amount exceeding

0.5 per cent of GDP in any financial year beginning with 2004-05.

3.5.2 Trend of additions in Guarantees

In Statement No.4 of Union Finance Accounts, details relating to guarantees

given by Union Government are furnished. Following Graph-6 shows the

trend of additions in guarantees of the Government as a percentage of GDP


Graph 6: Trends of additions in guarantees: 2005-15

Source: Union Government Finance Accounts and CSO GDP data (old series) for financial

year up to 2013-14. For 2014-15, GDP figures released by CSO (New Series) in February

2016 has been used. In 2004-05, the addition of guarantee was ` 42,700 crore, which was 1.3

per cent of GDP.

Above graph shows that except for financial years 2009-10 and 2011-12, the

addition of guarantee (as reflected in Union Government Finance Accounts of

relevant years) remained within the target of 0.5 per cent of GDP.

Ministry stated (May 2016) that the ceiling of 0.5 per cent of GDP for any FY

has been calculated at the beginning of the said year in order to provide

guarantees. It added that the Government had ensured that Guarantees given

during the year 2009-10 and 2011-12 were well within 0.5 per cent of GDP,

i.e. budget/revised estimates of the respective financial years. However,

subsequent revision of GDP of these two years in February 2016 by CSO was

not anticipated at the time of finalization of said guarantees.

05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15

Addition of guarantee 7,409 4,045 17,13512,786 37,10222,74650,77346,08434,09852,275

Addition as % of GDP (2nd

axis)0.2 0.1 0.3 0.2 0.6 0.3 0.6 0.5 0.3 0.4

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0

10,000

20,000

30,000

40,000

50,000

60,000

`̀̀̀in

cro

re


45

The reply of the Ministry is not in order. Only for FY 2014-15 the new series

GDP released by CSO on 8 February 2016 has been adopted by Audit and the

addition in guarantee was within the prescribed limit. In respect of earlier

years, Audit has adopted the old series of GDP for measuring and analysing

the trend of the relevant years. The ceiling breached in the two years referred

to above was with reference to old series of GDP.

3.6 Borrowings from Reserve Bank of India

As per Section 5 of FRBM Act, the Central Government shall not borrow from

the Reserve Bank except by way of advances to meet temporary excess of

cash disbursement over cash receipts during any financial year in accordance

with the agreements which may be entered into by the Government with the

Reserve Bank of India (RBI). The Act, however, provides that the RBI may

buy and sell the Central Government securities in the secondary market.

We observed that during the period under review Central Government did not

borrow from RBI.

Conclusion

During the year 2014-15, the Government was able to achieve its budgeted

revenue and fiscal deficit targets of 2.9 and 4.1 per cent respectively.

However, the Government was unable to achieve the budgeted target of

effective revenue deficit, which slipped to 1.9 per cent from budgeted level of

1.6 per cent.

In FY 2014-15 certain transactions, such as misclassification of expenditure,

accruing of one time receipts, short transfer of levies/cess to the designated

funds, non-recognition of losses in the operation of National Small Savings

Fund (NSSF), short assignment of net proceeds to States, and unpaid

expenditure on subsidies, had affected or had the bearing to affect the

computation of prescribed deficit indicators set out in the Act and the Rules

made thereunder. Likewise, the liabilities of the Union Government had also

been understated due to non-inclusion of investments made out of NSSF

collections in State Government Securities and India Infrastructure Finance

Company Limited; investment of Post Office Insurance Fund with private

fund managers; and accumulated deficit (loss) in the operation of NSSF.


46

Financial indicators are the benchmark to review the compliance of fiscal

consolidation process as envisaged under various provisions of the FRBM

Act. Computation of financial indicators by not factoring in above transactions

had a bearing on the accuracy, completeness, and transparency in the financial

performance of the Government.


47

Section 3 of the FRBM Act envisages laying of three fiscal policy statements

(viz. Mid-term Fiscal Policy (MTFP); Fiscal Policy Strategy (FPS); and

Macro-economic Framework (MF)) in both Houses of Parliament along with

the Annual Financial Statement and the Demands for Grants. Amendment

made in the FRBM Act in 2012 prescribed another statement (Medium Term

Expenditure Framework (MTEF) Statement) containing a three year rolling

target for prescribed expenditure indicators, with specification of underlying

assumptions and risks involved. The MTEF is mandated to be laid before both

Houses of Parliament immediately following the Session of Parliament in

which the MTFP; FPS and MF Statements are laid.

Efficient management of tax administration/other receipts and public

expenditure holds the balance for achievement of various fiscal indicators

envisaged under the FRBM Act/Rules. This chapter analyses the receipts and

expenditure of the Union Government for FY 2014-15 vis-a-vis projections

contained in the fiscal policy statements and the Budget at a Glance and

Annual Financial Statement.

4.1 Projections in Mid Term Fiscal Policy Statement

MTFP Statement contains three year rolling targets for fiscal indicators viz.

revenue deficit, effective revenue deficit, fiscal deficit, Tax Revenue and Total

Outstanding Liabilities as a percentage of GDP with specification of

underlying assumptions, including assessment of sustainability relating to

balance between revenue receipt and revenue expenditure; use of capital

receipts including market borrowings for generating productive assets.

Analysis of projections of some of the components of fiscal indicators for FY

2014-15 in MTFP Statement are discussed below:

4.1.1 Gross Tax Revenue projection

In the MTFP Statement placed along with Budget 2012-13, the Government

had set gross tax revenue target of 11.7 per cent of GDP for FY 2014-15. This

Chapter 4: Analysis of projections in fiscal

policy statements


48

target was revised to 11.2 and 10.6 per cent of GDP in subsequent MTFP

Statements placed with Budget 2013-14 and 2014-15 respectively. The target

was again revised downward to 9.9 per cent (revised estimates) of GDP in

MTFP Statement placed with Budget 2015-16.

In Budget 2014-15, several proposals were made to recalibrate the tax effort

on Indirect Taxes so that fiscal consolidation may be achieved. However, in its

Mid-Year Economic Analysis Report (December 2014), while explaining

deviation in meeting the obligations under the FRBM Act, the Government

stated that its revenue projections for FY 2014-15 were over-optimistic. In the

said Analysis Report it was brought out that there was overestimation of gross

tax revenue amounting to ` 1,05,084 crore. The Report also stated that an

overestimation of revenue can result from an overestimation of nominal GDP

growth as well as overestimation of buoyancy.

The Ministry stated (May 2016) that audit observation is factual in nature. It

added that the rolling targets in respect of prescribed fiscal indicators

including tax-GDP ratio is based on underlying assumptions, and variation in

these macro-economic parameters necessitates re-adjustment in prescribed

fiscal indicators of the Budget year.

The reply is not tenable as the MTFP Statement containing rolling targets with

specifications of underlying assumptions for fiscal indicators should be on a

sound basis, which may form the base for preparing the Budget for the

relevant year.

4.1.2 Total Outstanding Liability projection

Rule 5 of FRBM Rules 2004 requires that the Central Government shall set

forth a three-year rolling target through MTFP Statement in respect of total

outstanding liabilities as a percentage of GDP.

In Budget 2012-13, the Government had set the target as 41.9 per cent of GDP

for FY 2014-15. It was noticed that the projections were revised upwardly for

the year 2014-15, to 44.3 per cent and 45.4 per cent of GDP in next two

MTFP Statements placed along with Budgets for the financial years 2013-14

and 2014-15 respectively. Against this, the actual ratio of total liability to GDP

for 2014-15 stood at 46.2 per cent (Refer Para No.3.4.2 of this Report).


49

The Ministry stated (May 2016) that while preparing Budget for particular

financial year, the Government provides the rolling targets of specified fiscal

indicators on the basis of certain underlying assumptions viz., GDP growth,

receipts, expenditure etc. and variation in these macro-economic parameters

necessitates re-fixing of fiscal targets in the Budget year.

The reply is not tenable as the Act/Rules envisaged that the targets of fiscal

indicators contained in MTFP Statement should be based on underlying

assumptions which could be the base for preparing the Budget for the relevant

year. Changing projection of fiscal indicators for a relevant year frequently

shows that the underlying assumptions were not on sound basis.

4.1.3 Disinvestment projection

In the MTFP Statement placed with Budget 2013-14, an amount of ` 20,000

crore was projected as disinvestment proceeds for FY 2014-15. Further, in

MTFP Statement placed along with the Budget of 2014-15, the Government

expected to raise ` 63,425 crore as total miscellaneous capital receipts. But in

RE 2014-15, this projection was scaled down to ` 31,350 crore. Against this

reduced projection, the actual realization from disinvestment of Public Sector

Undertakings in FY 2014-15 was ` 37,737 crore, far off from the budgeted

projection of ` 63,425 crore.

The Ministry stated (May 2016) that the audit observation is factual. It added

that with uncertain market conditions prevalent for most part of the year,

there was high probability of getting less than optimum returns on

disinvestment and the Government decided to take more cautious approach to

go slow on disinvestment.

The reply of the Ministry reinforces the audit contention that the projection for

various components of fiscal indicators contained in the fiscal policy

statements are not based on sound assumptions.

4.1.4 Structural imbalance in the composition of expenditure

MTFP statement measures deployment of capital receipts for generating

productive assets through the ratio of Plan Expenditure as a percentage of

fiscal deficit and Non-Plan expenditure as a percentage of revenue receipts.


50

The projections for the year 2014-15 in the MTFP Statements for 2012-13 and

2014-15 vis-à-vis actuals are as under:

Table-9: Structural composition of expenditure

(in percentage)

Parameters

Assumptions made for FY 2014-15 in

MTFP Statement placed along with

Actual for FY

2014-15 (worked out

from Budget at a

Glance for

2016-17)

Budget for

2012-13

Budget for

2014-15

Plan Expenditure/Fiscal Deficit

131 108.3 90.6

Non-Plan Expenditure/total revenue receipt

88 102.5 109.0

Note: Issue not discussed in MTFP Statement for FY 2013-14.

To assess the quality of government spending, an increasing ratio of plan

expenditure to fiscal deficit is a pointer towards the efficient deployment of

borrowed resources. On the other hand, non-plan expenditure in excess of

revenue receipts indicate use of capital resources for consumptive expenditure,

thereby raising issues of structural problem in the composition of expenditure,

requiring corrective measures towards development works. However, from

Table-9 above, it would be observed that the projections made in the MTPF

Statements to address the issue of structural problems in the composition of

expenditure could not be achieved, as plan expenditure to fiscal deficit ratio

slipped to 90.6 per cent from budgeted level of 108.3 per cent and non-plan

expenditure to total revenue receipt ratio increased to 109 per cent from

102.5 per cent for FY 2014-15.

Ministry stated (June 2016) that the projections in the MTFP statement are set

on the basis of certain underlying assumptions viz., GDP growth, receipts,

expenditure etc. over the projection period and variation in these macro-

economic parameters at the time of actual budgeting necessitates re-fixing of

fiscal targets in the Budget year. It also added that there has been

improvement in deployment of capital receipts for generating productive

assets. Between 2012-13 and 2016-17, capital expenditure as percentage of

fiscal deficit has increased from 34 per cent to about 46 per cent.

The increasing proportion of capital expenditure as percentage of fiscal deficit

is appreciable. However, the fact remains that projections for components of

fiscal indicators including receipts, expenditure and liabilities, as contained in


51

fiscal policy statements are not based on sound assumptions leading to

frequent and substantial recalibration in later years and also having impact on

structural imbalance in composition of expenditure.

4.2 Projections in Medium Term Expenditure Framework Statement

Consequent to amendments made in FRBM Act in 2012, one of the key

requirements relate to laying of a Medium Term Expenditure Framework

(MTEF) Statement in the Parliament, in the Session immediately following the

Budget Session. In terms of sub-section 6A of Section 3 of the Act, the MTEF

Statement shall set forth a three year rolling target for prescribed expenditure

indicators (in prescribed format notified on 5 September 2012) with

specification of underlying assumptions and risks involved.

Comparison of projection of expenditure for FY 2014-15 contained in MTEF

Statement of 2013-14 (August 2013) with Budget estimates for FY 2014-15

contained in MTEF Statement of 2014-15 (December 2014) and revised

estimates for FY 2014-15 as contained in MTEF Statement of 2015-16

(August 2015) is given in Annex-4.1.

From the annexure, it would be seen that underlying assumptions based on

which the expenditure projections made for FY 2014-15 in MTEF Statement

of 2013-14 were changed in subsequent years. As a result of persistent

changes in projections, following points were observed.

• In respect of revenue expenditure and capital expenditure, the

projection made in August 2013, as compared to RE 2014-15 (August

2015), were overestimated by 3.93 and 16.89 per cent respectively.

• The projection made in respect of grants for creation of capital assets

was reduced from ` 2,33,345 crore (August 2013) to ` 1,68,104 crore

(December 2014) and to ` 1,31,898 crore (August 2015). The ultimate

contraction under this head of expenditure was ` 1,01,447 crore,

amounting to 43.48 per cent of the projected figure.

• Projections of revenue expenditure on Subsidy, Defence, Finance, and

Urban Development were augmented substantially in RE 2014-15.

While in rest of the heads of expenditure there were over projections,

which were curtailed in RE 2014-15.


52

• With respect to Capital Expenditure in Home Affairs, Finance, Health,

Commerce and Industry, Planning and Statistics, IT & Telecom and

Scientific Departments the over projections were more than 40 per cent

in MTEF Statement of August 2013.

• Some of the heads of expenditure have also been compared vis-à-vis

actuals as detailed in Annex-4.2. The actual revenue expenditure under

the heads Pension and Defence for FY 2014-15 outstripped the

projection for that year as contained in MTEP Statement of 2013-14 by

20.3 and 9.3 per cent respectively. At the same time, actual capital

expenditure fell short by 15.0 per cent as compared to projections.

Comparison of projections with actuals in Annual Financial Statement

and Union Government Finance Accounts is also given in Annex-4.2

Ministry stated (June 2016) that the projections in the MTFP statement are set

on the basis of certain underlying assumptions viz., GDP growth, receipts,

expenditure etc. over the projection period and variation in these macro-

economic parameters at the time of actual budgeting necessitates re-fixing of

fiscal targets in the Budget year.

The reply of the Ministry needs to be seen along with the comments contained

in Paras 4.1 and 4.2 which bring out that there were wide variations in the

projected receipts and expenditure figure for a particular financial year

included in the various fiscal policy statements vis-a-vis budget estimates

prepared for that financial year. This indicates deficiencies in the process of

making assumptions while preparing these fiscal policy statements.

Recommendation: The Government may strengthen the process of making

underlying assumptions for projection of receipt and expenditure in various

fiscal policy statements to insulate them from frequent changes and to

seamlessly integrate the projections in the Budget.

Conclusion

The analysis of the projections of receipts and expenditure included in the

fiscal policy statements for multi-year revealed that the projections were at

variance vis-a-vis corresponding figures for that year as reflected in

subsequent statements and Budget documents.


53

FRBM Act requires that the Central Government shall take suitable measures

to ensure greater transparency in its fiscal operations and make such

disclosures in the prescribed forms. This chapter analyses general transparency

in government accounts together with authenticity/transparency of data

contained in disclosure forms/statements mandated under the Act.

5.1 Transparency in Government Accounts

Section 6(1) of FRBM Act provides that the Central Government shall ensure

greater transparency in its fiscal operations in the public interest and minimise

as far as practicable, secrecy in the preparation of the Annual Financial

Statement and the Demands for Grants. Observations relating to issues of

transparency are discussed in succeeding paras.

5.1.1 Non-inclusion of statements in Union Accounts

12th FC, in its Report submitted to the Government in November 2004, had

recommended inclusion of eight additional statements/information in the

Union Government accounts for greater transparency and informed decision

making, pending transition from cash to accrual basis of accounting. The

recommendation was accepted in principle by the Government. The additional

statements recommended by the Commission were in respect of the following:

(i) Subsidies given, both explicit and implicit; (ii) Expenditure on salaries by

various departments/units; (iii) Detailed information on pensioners and

expenditure on Government pensions; (iv) Committed liabilities in the future;

(v) Debt and other liabilities as well as repayment schedule; (vi) Accretion to

or erosion in financial assets held by the Government including those arising

out of changes in the manner of spending by it; (vii) Implications of major

policy decisions taken by the Government during the year or new schemes

proposed in the Budget for future cash flows; and (viii) Maintenance

expenditure with segregation of salary and non-salary portions.

Chapter 5: Disclosure and Transparency in

fiscal operations


54

This recommendation of the Commission was endorsed by 13th and 14th

Finance Commissions also. However, the Government has not taken steps to

include these statements in the accounts of the Union Government even after a

lapse of eleven years, despite in-principle acceptance of the recommendation.

The Ministry stated (May 2016) that the Government is making all disclosure

statement as notified under the FRBM Rules. It added that the FRBM Act does

not require Government to make disclosure statements as recommended by the

Finance Commission and other Committees.

While taking into consideration the reply of the Ministry, it may be mentioned

that Section 6(1) of the FRBM Act requires the Central Government to take

suitable measures to ensure greater transparency in its fiscal operations. As

such the inclusion of above eight additional statements in the accounts of the

Union Government would further enhance the transparency.

Recommendation: Necessary steps may be taken to append additional

statements in the Union Government Finance Accounts as suggested by the

12th

FC to ensure greater transparency in the accounts.

5.1.2 Lack of transparency in Direct tax receipt figure

In the Annual Financial Statement and Union Government Finance Accounts,

the estimates and actual collection from Tax Revenue are netted after taking

into account the amount of refunds (including interest on refunds). Analysis of

direct tax receipt of the Union Government, revealed that substantial portion

of tax collected goes out as refunds every year, as detailed in the Table-10

below:

Table-10: Collection of Direct Tax and Refunds

(`̀̀̀ in crore)

Financial

Year

Gross Direct Tax

Collection*

(1)

Refunds #

(2)

Total Direct Tax

collection

(3=1+2)

Percentage of

refunds to direct

tax collection

(4=2/3)

2010-11 4,45,995 85,668 5,31,663 16.11

2011-12 4,93,987 1,00,300 5,94,287 16.88

2012-13 5,58,989 90,432 6,49,421 13.93

2013-14 6,38,596 95,658 7,34,254 13.03

2014-15 6,95,792 1,17,495 8,13,287 14.45

* Source: Union Government Finance accounts. # Source: CAG’s Report No. 3 of 2016 (Direct Taxes). Refunds also include interest on refunds of taxes.


55

During last five years period 2010-15, the refunds ranged from 13.03 to 16.88

per cent of the total direct tax collection. Though the amount of refunds was

substantial, no information about the quantum of refunds was available either

in the Annual Financial Statement or in the Finance Accounts. As such, the

accounts of the Government were not transparent in respect of information on

Tax Revenue.

The Ministry while furnishing the data of refunds, which ranged between 12 to

17 per cent of the gross direct tax collection, stated (May 2016) that in

Finance Accounts revenue receipt are categorized as Tax Revenue and Non-

tax Revenue, and figures for Direct Taxes are not shown separately. It added

that Finance Accounts is prepared at minor head level showing the tax figures

net of refunds.

Reply of the Ministry is not tenable as refunds and interest on refunds under

respective tax receipt heads (viz. direct tax and indirect tax) form a significant

proportion of gross Tax Revenue and hence needs to be depicted in the Union

Government Finance Accounts through appropriate disclosures to improve

transparency in accounts.

5.2 Transparency in disclosure statements mandated under FRBM

Act

In compliance to Section 6 of FRBM Act, along with Budget, disclosure

statements viz. arrear of tax and non-tax receipts, position of outstanding

guarantees, liabilities and assets of the Government etc. are placed before the

Parliament. Examination of these statements revealed inadequacy in

disclosures, as discussed below.

5.2.1 Understatement of arrears of Non-Tax Revenue

Rule 6 of the FRBM Rules requires laying of a statement providing details of

non-tax revenue in arrear in Form D-2. Receipt Budget 2016-17 (Annex-12)

provided details of arrears of non-tax revenue as at the end of reporting year

2014-15. As per disclosure, at the end of FY 2014-15, the arrears of non-tax

revenue was ` 1,07,961.47 crore, which also includes ` 35,141.05 crore as

arrears of interest receipts from State/Union territory Government, Department

Commercial Undertakings and Public Sector Undertakings.


56

It was noticed that, as per Union Government Finance Accounts for FY 2014-

15, the amount of arrears of interest receipts from State/Union Territory

Governments and other loanee entities was ` 48,523.28 crore. Thus,

information relating to interest receipt disclosed under the FRBM Act for the

same period was not correct and was understated by ` 13,382.23 crore.

5.2.2 Non-inclusion of outstanding coal levy in arrears of Non-Tax

Revenue

It was noticed that out of additional levy of ` 9,518 crore (for coal extracted

up to 24 September 2014) on cancelled coal block to be deposited by 31

December 2014 (as discussed in Para 3.2.5.2), only ` 6,150 crore was received

till 31 March 2015. An amount of ` 3,368 crore was outstanding as receivable

during the financial year 2014-15. However, this receivable amount was not

reflected in the Form D-2 (Receipt Budget 2016-17, Annex-12) as arrears of

non-tax revenue. Thus, the disclosure made by the Government was

inadequate.

Ministry of Coal stated (May 2016) that the amount of coal levy was to be

calculated based on the actual amount of coal extracted till 31 March 2015

and this information would have been possible only after March 2015. Thus, it

could technically become arrear only during 2015-16.

The reply of the Ministry is factually incorrect as they are referring for the

dues for the period 25 September 2014 to 31 March 2015, which has not been

raised in the above para.The balance amount of ` 3,368 crore was receivable

for the year 2014-15, as it was to be deposited by 31 December 2014. Further,

Form D-2 for reporting year 2014-15 was made available in the Budget of

2016-17 and there was sufficient time available with the Ministry to furnish

updated and accurate information relating to the reporting year 2014-15.

5.2.3 Understatement of assets

Rule 6 of the FRBM Rules requires laying of a statement of physical and

financial assets of the Government in Form D-4. Receipt Budget 2016-17

(Annex-5(iv)) provides details of assets of the Union Government as at the end

of reporting year 2014-15. As per the disclosure made by the Government, the

cumulative total of assets at the end of the year 2014-15 was ` 9,71,354.25

crore. Following observations relating to inconsistency in the disclosure

pertaining to asset register have been made.


57

5.2.3.1 Variation in figures of closing and opening balances of assets

On examination of Form D-4, variations were noticed in the closing and

opening balances of assets, as depicted below in the Table-11.

Table-11: Variations in closing and opening balances

(`̀̀̀ in crore)

Position of total assets

at the end of financial

year

Position of total assets at

beginning of next financial year

Variation in closing

and opening figures

2012-13 9,77, 672.48 2013-14 9,70,914.56 6,757.92

2013-14 10,31,139.36 2014-15 9,18,374.52 1,12,764.84

2014-15 9,71,354.25

Source: Receipt Budget (Annex-5(iv) of 2014-15, 2015-16 and 2016-17.

Clarification for variation in the closing and opening figures in respect of

assets for financial years 2012-13 and 2013-14 was not given in the Form D-4

of relevant years, which indicated absence of transparency in disclosure.

5.2.3.2 Inconsistency in figures of loans to Foreign Governments

Examination of Form D-4 disclosure revealed that a sum of ` 9,773.73 crore

was shown as loans outstanding from foreign governments at the end of 2014-

15. Similar information contained in the Union Government Finance Account

revealed that a sum of ` 9,210.62 crore was outstanding as loans from foreign

governments at the end of 2014-15. Thus, there was overstatement of

` 563.11 crore of loans outstanding from foreign governments in Form D-4

disclosure.

5.2.4 Inconsistency in disclosure of grants for creation of capital assets

Rule 6 of the amended FRBM Rules requires laying of a statement providing

the Ministry-wise breakup of grants for creation of capital assets in Form D-6.

The disclosure requires providing details of budget and revised provisions for

the current financial year and BE for ensuing financial year. During

examination of information contained in Form D-6 disclosed by the

Government following inconsistencies were noticed:

5.2.4.1 Incorrect disclosure in Form D-6

The information contained in Form D-6 for BE 2014-15, which also contained

information relating to BE/RE of 2013-14, was analysed in audit. Following

inconsistencies were noticed.


58

• In the column meant for BE 2013-14, provision of ` 79.04 crore in

respect of Ministry of Defence, Ministry of Environment & Forests,

and Ministry of Labour & Employment were included afresh in Form

D-6 in the Expenditure Budget Volume-I for 2014-15, which were

absent in Form D-6 in the Expenditure Budget Volume-I for 2013-14.

• In respect of Department of Health Research, a provision of ` 98 crore

was included in the column meant for BE 2013-14 in Expenditure

Budget Volume-I for 2013-14. However, the same was missing in

Form D-6 in the column meant for BE 2013-14 in Expenditure

Budget Volume-I for 2014-15.

Thus, Form D-6 for BE 2013-14 contained total provision of ` 1,74,656 crore,

which was altered as ` 1,74,633 crore for FY 2013-14 in Expenditure Budget

Volume-I for 2014-15. No statement or clarification with regard to variations

made in the provision for the relevant financial year was given in the Budget

documents by the Government.

5.2.4.2 Discrepancies between Budget Estimates and DDG

For FY 2014-15 in respect of Ministry of Housing and Urban Poverty

Alleviation, there were discrepancies in the expenditure provision on grants

for creation of capital assets included in Form D-6 and in the Detailed

Demands for Grants (DDGs) as detailed in the Table-12 below.

Table-12: Discrepancies between Budget Estimate and DDG

(`̀̀̀ in crore)

FY 2014-15

Budget Estimate Revised Estimate

DDG Form D-6 DDG Form D-6

4,026.04 4,004.99 2,230.87 Nil

Comments contained in Paras 5.2.4.1 and 5.2.4.2 points that information

furnished to the Parliament in two sets of data viz. Form D-6 and the DDGs of

the Ministries/Departments were not consistent.

In respect of inconsistency and discrepancy in the information furnished

through prescribed Forms pointed out by Audit, the Ministry stated (May and

June 2016) that the Budget Division of the Ministry compiles such information

strictly on the basis of the information furnished by the respective

Ministries/Departments and it has no means to verify the facts and figures


59

furnished. It added that data contained in some statements may be impacted,

inter-alia, by any ongoing liquidation and improvement in capture of data,

which has been mentioned through appropriate foot note. Ministry also

advised the Audit to take up the cases of inconsistency in respect of data of

individual Ministry in various Forms with the respective Ministries.

The reply of the Ministry is against the spirit of the Act and Rules made

thereunder. In respect of many information, the reporting year for disclosure

mandated under the Act and release of actual figures through the certified

accounts of that year are more or less in the same timeframe of the year. The

Ministry of Finance needs to have appropriate coordination with all the

Ministries/Departments to ensure that correct and consistent figures find place

in all the documents which have the linkages. Ministry of Finance, being the

focal point for administration of the FRBM Act, should ensure that the

information being disclosed under the Act are complete and accurate.

Recommendation: Disclosure statements prepared under the FRBM Act and

Rules made thereunder should be complete in all respect and transparent.


60

Conclusion

Transparency in fiscal operations of the Government is an important

ingredient to achieve the accurate target of fiscal indicators envisaged under

the FRBM Act. However, it was noticed that the Government did not append

additional disclosure statements as recommended by Twelfth Finance

Commission to bring more transparency in its operations. There was lack of

adequate transparency with regard to direct tax receipt figures. Further, the

disclosures made by the Government in various Forms envisaged under the

FRBM Act were not complete and at variance with other publications, such as

Union Government Finance Accounts and Detailed Demands for Grants.

Annexes


61

Annex-1.1

(Refer Para No. 1.5)

Disclosure statements mandated under FRBM Act/Rules

Form No. Details Disclosure made through

D-1 Tax Revenue raised

but not realized

Annex-11 of Receipt Budget

D-2 Arrears of Non-Tax

Revenue


D-3 Guarantees given by

the Government

Annex-5(iii) of Receipt Budget

D-4 Asset Register Annex-5(iv) of Receipt Budget

D-5 Liability of Annuity

Projects


D-6 Grants for creation of

capital assets

Annex-6 of Expenditure Budget

Volume-I


62

Annex-3.1

(Refer Graph 1, 2, 3 and 4)

Deficits, GDP and Grants for creation of capital assets

(`̀̀̀ in crore )

Financial

Year

GDP* Derived from Annual Financial Statement/Union Government

Finance Accounts

As per Budget at a Glance

Revenue

Deficit

Effective

Revenue

Deficit

Fiscal

Deficit

Expenditure

on Grants

for creation

of capital

assets

Grants for

creation of

capital assets

as %age of

Revenue

Deficit

Revenue

Deficit

Effective

Revenue

Deficit

Fiscal

Deficit

Expenditure

on Grants

for creation

of capital

assets

Grants for

creation of

capital assets

as %age of

Revenue

Deficit

1 2 3=2-5 4 5 6=5/2 7 8=7-10 9 10 11

2004-05 32,42,209 78,700

- 1,03,798

- - 78,338 - 1,25,202 - -

2005-06 36,93,369 1,09,697 - 1,64,927 - - 92,299 - 1,46,435 - -

2006-07 42,94,706 1,32,847

- 1,82,934

- - 80,222 - 1,42,573 - -

2007-08 49,87,090 85,435

- 1,64,962

- - 52,569 - 1,26,912 - -

2008-09 56,30,063 3,56,377

- 4,34,444

- - 2,53,539 - 3,36,992 - -

2009-10 64,77,827 3,52,956

- 4,32,443

- - 3,38,998 - 4,18,482 - -

2010-11 77,84,115 2,53,429

- 3,82,642

- - 2,52,252 - 3,73,591 - -

2011-12 90,09,722 3,94,918

2,93,687

5,17,881

1,01,231

25.6 3,94,348 2,61,766 5,15,990 1,32,582 33.6

2012-13 1,01,13,281 3,64,582

2,48,872

4,94,514

1,15,710

31.7 3,64,282 2,48,572 4,90,190 1,15,710 31.8

2013-14 1,13,55,073 3,57,303

2,27,465

5,03,230

1,29,838

36.3 3,57,048 2,27,630 5,02,858 1,29,418 36.2

2014-15 1,24,88,205 3,66,228

2,35,468

5,15,948

1,30,760

35.7 3,65,520 2,34,760 5,10,725 1,30,760 35.8

*For FY 2014-15, the first revised estimates (R1) of GDP (new series with 2011-12 as base year) released by CSO on 8 February 2016 has been adopted in this Report and for

earlier years old series of GDP figures have been adopted. In CAG’s Report No. 50 of 2015 on the accounts for FY 2014-15 of the Union Government, provisional estimates

of GDP - ` 125,41,208 crore (new series with 2011-12 as base year) published by CSO on 29 May 2015 had been adopted for calculating deficit indicators.


63

Annex- 3.2

(Refer Para No. 3.2.5.1)

Misclassification of expenditure as reported in Para 4.6 of CAG’s Report No. 50 of 2015

Sl. No Description of Grant Major

head

Object head in which

expenditure was

incorrectly booked

Amount (` in crore)

(A) Para No.4.6.1-Misclassification of expenditure of capital nature under revenue head of expenditure 1. 04-Department of Atomic Energy 2852 51/52/60 16.14

2. 3401 51/52 11.05

3. 20-Ministry of Defence 2037 52 78.62

4. 2075 53 6.84

5. 92-Department of Space 3402 52 35.24

6. 60-Department of Higher Education 2202 53 1.91

7. 62-Ministry of Labour and Employment 2230 52 9.72

8. 106-Ministry of Water Resources 2701 51/52/53 23.60

9. 2702 51/52/53 59.74

10. 2711 51/52 5.33

Total (A) 248.19

(B) Para No.4.6.2-Misclassification of expenditure of revenue nature under capital head of expenditure

1. 04-Department of Atomic Energy 4861 27 54.75

2. 5401 27 3.71

3. 96-Ministry of Tourism 5452 28 1.71

4. 98-Andaman and Nicobar Islands 4801 21 55.54

5. 5052 50 1.05

6. 5452 50 6.23

7. 102- Lakshadweep 4810 35 2.00

Total (B) 124.99

(C) Para No.4.6.3-Misclassification of expenditure of revenue nature under capital head of expenditure 1. 33- Department of Economic Affairs 5475 42 365.00

(D) Para No.4.6.4-Misclassification of expenditure of revenue nature under capital head of expenditure 1. 11-Department of Commerce 5453 53 180.00

2. 1.00

3. 33-Department of Economic Affairs 5466 54 67.00

4. 92-Department of Space

5252 5402

60 10.44

Total (D) 258.44

(E) Para No.4.6.4-Misclassification of expenditure of capital nature under revenue head of expenditure 1. 92-Department of Space

3252 3402

21/50 274.48

Understatement of capital expenditure (A+E) 522.67

Overstatement of capital expenditure (B+C+D) 748.43

Net overstatement of capital expenditure 225.76


64

Annex-3.3

(Refer Para No. 3.2.5.3)

Short transfer of levy/cess collected during financial year 2014-15

(` in crore)

Sl. No. Levy/Cess Receipts

collected Transfer to

the Fund Short

Transfer 1. 1

.Universal Service Obligation (USO) Fund was setup in April 2002 to be utilized exclusively for meeting the Universal Service Obligation by providing access to basic telegraph services, viz. public telecommunication and information services and household telephones in rural and remote areas, as may be determined by the Central Government. The resources for meeting the USO Fund are to be credited to the Consolidated Fund of India (CFI) raised through a ‘Universal Access Levy’ and subsequently transferred to the non-lapsable USO Fund in the Public Account of India for being utilized exclusively towards the stated objectives. (Head 8235.118)

7,537.88 2,086.98 5,450.90

2. 2.

Prarambhik Shiksha Kosh (PSK) was created in 2005-06 under non-interest bearing section of the reserve funds in the Public Account. This fund is meant to meet the expenditure requirement for elementary education under the scheme of Sarva Shiksha Abhiyaan and Mid-Day Meal Scheme. For the purpose, a primary education cess of 2 per cent is levied on all central taxes. The cess collection is initially credited to the CFI and subsequently transferred after obtaining the Parliamentary authorisation to the PSK to finance the expenditure on elementary education. (Head 8229.127)

24,219.00 22,323.00 1,896.00

3. 3.

National Clean Energy (NCE) Fund was established in 2010-11 for funding research and innovative projects in clean energy technology by levying a clean energy cess on coal produced in India and imported coal. The cess credited to the CFI is subsequently transferred to the NCE Fund in the Public Account. (Head 8235.129)

5,393.46 4,700.00 693.46


65

Sl. No. Levy/Cess Receipts

collected Transfer to

the Fund Short

Transfer

4. 4.

Cess on Tea collected during the year and credited to CFI was to be transferred to Development Fund for Tea Sector. (Head 8229.126)

57.38 0.00 57.38

5. 5.

Beedi Workers’ Welfare (BWW) Fund was created in the Public Account under BWW Fund Act 1976 to provide for the financing of measures to promote the welfare of persons engaged in Beedi establishment. For this purpose, the Government introduced a cess in the form of duty of excise on manufactured Beedi. The collection of cess is initially credited to the CFI and subsequently transferred through the appropriation to the Beedi Workers Welfare Fund in the Public Account. (Head 8229.200-Other Development and Welfare Funds)

175.32 152.45 22.87

6. 6.

Cess on Feature Film collected during the year and credited to CFI was to be transferred to Cine Workers Welfare Fund in the Public Account. (8229.115)

3.84 1.73 2.11

Total 37,386.88 29,264.16 8,122.72


66

Annex-4.1


Expenditure projection for FY 2014-15

(` in crore)

Heads of expenditure

Projections for

FY 14-15

(in MTEF

Statement for

FY 2013-14)

BE for

2014-15

% age

change in

BE

2014-15

(Col.3

w.r.t

Col.2)

RE for

2014-15 in

MTEF

Statement

for FY

2015-16

% age

change in

RE

2014-15

(Col.5

w.r.t

Col.2)

1 2 3 4 5 6

Revenue Expenditure

Salary 86,578 90,636 4.69 91,847 6.09

Interest 4,14,350 4,27,011 3.06 4,11,354 -0.72

Pension 77,799 81,983 5.38 81,705 5.02

Subsidy

Fertilizer 62,274 72,970 17.18 70,967 13.96

Food 1,20,000 1,15,000 -4.17 1,22,676 2.23

Petroleum 35,000 63,427 81.22 60,270 72.20

Centralized Provision for Grants to States

1,68,731 1,25,332 -25.72 1,21,121 -28.22

Defence 1,25,116 1,34,412 7.43 1,42,256 13.70

Postal Deficit 6,247 6,908 10.58 6,378 2.10

External Affairs 9,475 9,977 5.30 8,531 -9.96

Home Affairs 16,801 16,542 -1.54 15,602 -7.14

Tax Administration 12,922 2,988 -76.88 13,833 7.05

Finance 16,360 22,277 36.17 24,793 51.55

Education 81,439 71,996 -11.60 59,472 -26.97

Health 33,575 31,624 -5.81 25,228 -24.86

Social Welfare 37,600 35,347 -5.99 30,532 -18.80

Agriculture and Allied 30,094 28,815 -4.25 24,334 -19.14

Commerce and Industry 15,748 16,444 4.42 13,755 -12.66

Urban Development 3,016 15,172 403.05 7,586 151.53

Rural Development 1,12,008 1,06,031 -5.34 86,145 -23.09

Development of North East Region

1,979 2,134 7.83 1,640 -17.13

Planning and Statistics 7,379 6,164 -16.47 5,516 -25.25

Scientific Department 10,402 10,096 -2.94 8,528 -18.02

Energy 12,268 11,197 -8.73 7,335 -40.21

Transport 16,300 17,765 8.99 17,562 7.74

IT and Telecom 6,433 7,194 11.83 4,919 -23.53

UT 6,823 6,167 -9.61 5,655 -17.12


67

Heads of expenditure

Projections for

FY 14-15

(in MTEF

Statement for

FY 2013-14)

BE for

2014-15

% age

change in

BE

2014-15

(Col.3

w.r.t

Col.2)

RE for

2014-15 in

MTEF

Statement

for FY

2015-16

% age

change in

RE

2014-15

(Col.5

w.r.t

Col.2)

Others 22,913 32,504 41.86 19,241 -16.03

Revenue Expenditure 15,49,629 15,68,111 1.19 14,88,780 -3.93

of which Grants for

creation of capital assets

2,33,345 1,68,104 -27.96 1,31,898 -43.48

Capital Expenditure

Defence 94,547 94,588 0.04 83,161 -12.04

Home Affairs 9,870 10,159 2.93 5,859 -40.64

Finance 23,649 16,130 -31.79 11,156 -52.83

Health 3,318 2,068 -37.67 1,050 -68.35

Commerce and Industry 2,370 1,233 -47.97 1,154 -51.31

Urban Development 8,373 9,767 16.65 7,547 -9.87

Planning and Statistics 989 797 -19.41 527 -46.71

Scientific Departments 4,365 3,898 -10.70 2,515 -42.38

Energy 7,561 7,124 -5.78 7,579 0.24

Transport 52,945 54,759 3.43 52,951 0.01

IT and Telecom 2,832 3,993 41.00 915 -67.69

Loans to States 11,880 12,000 1.01 11,900 0.17

UT 2,102 1,727 -17.84 1,484 -29.40

Others 6,661 8,539 28.19 4,580 -31.24

Capital Expenditure 2,31,462 2,26,781 -2.02 1,92,378 -16.89

Total Expenditure 17,81,091 17,94,892 0.77 16,81,158 -5.61


68

Annex-4.2


Comparison of expenditure projection for FY 2014-15 with actuals

(`̀̀̀ in crore)

Heads of

expenditure

Projections

for FY 14-15

(in MTEF

Statement

for FY 2013-

14)

BE in MTEF

Statement

/Budget at a

Glance for

2014-15

BE in

Annual

Financial

Statement

for 2014-15

RE for

2014-15 in

MTEF

Statement of

2015-16

Actuals

(as per Union

Government

Finance

Accounts)

Actuals

(as per

Budget at a

Glance)

% age of

variation of

actuals (Col.7

w.r.t. Col.2)

1 2 3 4 5 6 7 8

Revenue Expenditure

15,49,629 15,68,111 17,95,396 14,88,780 16,95,137 14,66,992 5.3

of which

Interest 4,14,350 4,27,011 4,49,883 4,11,354 4,25,098 4,02,444 -2.9

Pension 77,799 81,983 82,983 81,705 93,611 93,611 20.3

Defence 1,25,116 1,34,412 1,39,651 1,42,256 1,45,146 1,36,807 9.3

Postal Deficit 6,247 6,908 7161.22 6,378 6,259* 6,121 -2.0

Capital Expenditure

2,31,462 2,26,781 2,39,747 1,92,378 2,14,007 1,96,681 -15.0

of which Defence 94,547 94,588 94,588 83,161 81,887 81,887 -13.4

* Difference between postal expenditure of ` 17,894.58 crore and receipt of ` 11,635.98 crore.


69

GLOSSARY

Annual Financial Statements

In terms of Article 112 of the Constitution the President shall in respect of every financial year cause to be laid before both the Houses of Parliament a statement of the estimated receipts and expenditure of the Government of India for that year, referred to as the “annual financial statement’’. Receipt and disbursements are shown under three parts in which government accounts are kept, viz. (i) Consolidated Fund, (ii) Contingency Fund, and (iii) Public Account.

Budget at a Glance

This document shows in brief, receipts and disbursements along with broad details of tax revenues and other receipts, including break-up of expenditure – Plan and Non-Plan, allocation of Plan outlays by sectors as well as by Ministries/Departments and details of resources transferred by the Central Government to State and Union Territory Governments.

Capital Expenditure

Expenditure of a capital nature is broadly defined as expenditure incurred with the object of either increasing concrete assets of a material and permanent character or of reducing recurring liabilities.

Capital Receipt

Capital receipt comprises of loans raised by the Government, borrowing from the Reserve Bank of India and loans taken from foreign Governments/institutions. It also embraces recoveries of loans advanced by the Government and sale proceeds of government assets, including those realized from divestment of Government equity in PSUs.

Consolidated Fund of India (CFI)

All revenues received by the Government of India, all loans raised by issue of treasury bills, internal and external loans and all moneys received by the Government in repayment of loans shall form one consolidated fund titled the “Consolidated Fund of India” established under Article 266 (1) of the Constitution.

Effective Revenue Deficit

Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets. It can be interpreted as the difference between the government’s current expenditure (on revenue account) and revenue receipts less grants for creation of capital assets which is recorded as revenue expenditure.

External Debt Bilateral and multilateral debt contracted by the Government from foreign Governments and financial institutions abroad, mostly in foreign currency.

Finance Accounts

The Finance Accounts presents the accounts of receipts and disbursements together with the financial results disclosed by the revenue and capital accounts, the accounts of the public debt and the liabilities and assets as worked out from the balances recorded in the accounts.

Finance Bill The Finance Bill is a money bill presented in fulfillment of the requirement under Article 110(1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget for the next financial year. Once the Finance


70

Bill is passed by both the houses of the Parliament and assented to by the President, becomes the Finance Act.

Fiscal Deficit Excess of total disbursements from the Consolidated Fund of India, excluding repayment of debt over total receipts in the Fund, excluding the debt receipts, during a financial year.

Fiscal Policy

The fiscal policy of a Government is concerned with the raising of government revenue and the incurring of government expenditure, to ensure how well the financial and resource management responsibilities have been discharged.

Gross Domestic Product

Gross Domestic Product (GDP) is the monetary value of all finished goods and services produced within a country’s borders in specific time period, generally calculated on an annual basis. It includes all private and public consumption, government’s outlays, investments and exports less imports that occur within a defined territory. GDP is worked out at constant prices with reference to specified base year and also at current prices (which includes changes in prices due to inflation or a rise in the overall price level).

Guarantees Article 292 of the Constitution extends the executive power of the Union to giving of guarantees on the security of the Consolidated Fund of India within such limits, if any, as may be fixed by the Parliament.

Internal Debt Internal Debt comprises loans raised in India. It is confined to loans raised and credited into the Consolidated Fund of India.

Loans and Advances

This include loans and advances given by the Union Government to the State and UT Governments, Foreign Governments, Public Sector Undertakings, Government Servants, etc.

Public Account

All other public moneys than those credited in the Consolidated Fund, received by or on behalf of the Government of India, are credited to the Public Account of India in terms of Article 266 (2) of the Constitution. These are the moneys in respect of which the Government acts more as a banker.

Public Debt Government debt from internal and external sources contracted in the Consolidated Fund of India is defined as Public Debt.

Revenue Deficit

Excess of revenue expenditure over revenue receipts.

Revenue Expenditure

Charges on maintenance, repair, upkeep and working expenses, which are required to maintain the assets in a running order and also all other expenses incurred for the day to day running of the organisation, including establishment and administrative expenses are classified as revenue expenditure. Grants given to State/UT Government and other entities are also treated as revenue expenditure, even if some of the grants may be meant for creating capital assets.

Revenue Receipts

These include proceeds of taxes and duties levied by the Government, interest and dividend on investments made by the Government, fees and other receipts for services rendered by the Government.

Documents

Report of the Comptroller and Auditor General of Indiadgace.cag.gov.in/pdf/Report No. 27_2016_English.pdf · Conclusion 15 Chapter 3: Progress ... entrust the Comptroller and Auditor